CHAPTER ONE
INTRODUCTION
1.1 Background
Of The Study
Almost all the
economist laid emphasis on capital formation as the major determinant of
economic growth. The meaning of capital formation is that society does not
apply the whole of it’s current productive a immediate desire of consumption,
but directs some part of it to the creation of capital goods, tools and
instruments, machines and transport facilities, plants and equipments all the
various forms of real capital that can so greatly increase the efficiency of
productive effort. The essence of capital formation is to divert a portion of
resources for the purpose of increasing the stock of capital goods so as to
make possible for an expansion of consumable output in the future.
The research focuses attention
on Nigerian Stock Exchange which as the most visible mirror of the formal
capital market in the country. The Nigerian Stock Exchange is one of the
institutions on the capital market, which specializes in all forms of marketing
trading securities. It is a network of individual institution and instrument.
The market plays a central and dispensable role for which is has been variously
described as the
“hall mark” or the
The rapid economic
development of any economy depends, among other things, on ready access of adequate
financial resources (Alile and Anao, 1990). The desire to develop financial
market in an economy is intimately connected with the objective of accelerating
industrial and agricultural development.
Among this financial
market is the stock exchange, which deals with the mobilization of bank medium
and long term capital funds (Sule and Momoh, 2009). The mechanism of stock
exchange came into existence to enable investment, which
were inherently illiquid to become liquid through reconversion into cast at the
decision of the investor without inconveniency the company (Olowe, 1997).
Today, words like globalization have become familiar in economic and finance
parlance and past growing intern dependence of economics and financial markets
cannot be ignored.
The development of the
capital market in Nigeria dates back to 1946, when the first government
securities was floated; the institutional facilities for the operation was
however absent and did not commence until fifteen years later, when the Nigerian
Stock Exchange (now the Nigerian Stock Exchange) was established in 1961.
Consequently, in 1953,
the Federal Government set up a committee under Professor R.H. Bar back to
advise on ways and means to fostering a shares market in Nigeria. The report of the committee was published in 1959 and it recommended among
other things:
1.0
The creation of facilities for dealing
in shares
1.1
The establishment of rules regulating
transfer and;
1.2
Measures to encourage saving and issue
of government and other organizations.
As follow up to this
report, the then Lagos Stock Exchange now Nigerian Stock Exchange was
incorporated on 15th September, 1960 through the collective
encouragement of the business community, the Nigerian Industrial Development
Bank Limited (NIDB) and the Central Bank of Nigeria.
Conclusively, the
availability of a secondary market endangers capital formation and socio-economic
development. The allocative function as critical in determining the overall
growth of the economy ie, the financial sector. Therefore, the role of the
Nigerian Stock Exchange in the economy is an engine for
capital formation saddles with the private sector in general to achieve
economic development program.
1.2
Statement Of The Problem
The Nigerian Stock Exchange
market is faced with numerous problems which comprises of decreased trading
activities where by persistent rise in the demand for securities without a
corresponding increase in its supply. In this case, investments are not easily
found for purchase.
Given the number of
years since the Nigerian Stock Exchange has been established and the
substantial financial resources available in the country, coupled with the
existing institutions one can claim that the entire spectrum of the capital
market has not been sufficiently active, especially when compared with the
capital unit of similar or lesser aged units in other developing countries. The
factors responsible for this could be identified to include:
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