STOCK MARKET OPERATIONS AND THE REAL SECTOR PERFORMANCE IN NIGERIA.

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Abstract

The study has examined the relationship between stock market operations and the real sector performance in Nigeria. The study adopted a panel data and an ex-post-facto research design. The secondary source of data was used for this study, and the data were sourced from Central Bank of Nigeria’s annual reports and statistical bulletin. The study covers the period of 28 years.The linear regressions were used to find out whether relationship exists between Nigerian capital market variables and Nigerian economic growth variables identified in the study.The simple linear model considered here, the coefficient, 0.956 measures the marginal contribution of MCAP to the respondent variable (RGDP).The S.E of regression 1428.285 measures the statistical reliability of the coefficients estimates.The T. Statistics of 16.745 represents the ratio of an estimated coefficient of its standard error i.e used to test the hypothesis that a coefficient i.e equal to Zero examine the probability of the T. Statistics, here we have 0.000, this implies that the relationship between our studied variables is highly significant both the ordinary least square and its log.The output above, R2 value of 0.956 and 0.913 i.e 86% variation in RGDP is explained by the independent variables (MCAP). This means that a unit increase in MCAP independent variable will result to 86% increase in the dependent variables RGDP, it further prove that our regression fits perfectly.The study revealed that stock market has significantly impacted on the real sector performance in Nigeria. The study, we recommended that government should restore confidence in the stock market by showing true commitment and sincerity of purpose in the capital market probe and the findings recommendation of the investigation panel should be fully implemented to restore sanity and confidence in the market.

CHAPTER 1

INTRODUCTION

1.1 Background of the Study

The markets that determine to a large extent the directions and level of real sector performance within an economy apart from other factors such as political, social and environmental factors, are the money and stock markets (Ahmed, 1998). The financial systems in an economy play a crucial role in the growth and development. It is used to measure the sophistication of the investment ‘climate’ of a country especially in attracting foreign investors. The stock market is a medium through which funds can be mobilized and channeled efficiently. It enables the government and industries to finance new and existing projects, expanding and modernizing industrial commercial concern. Okereke (2006) identified the stock market as the most credible source of long-term funds to any economy and a leading economic indicator in developed economies. The stock market makes the interaction of both savers and investors possible in a country (in an open market), all the aggregate savings are channeled into most desirable investment for the purpose of real sector performance and development. A viable equity market can serve to make the financial system more competitive and efficient. Without equity markets, companies have to rely on internal finance through retained earnings. Large and well established enterprises are in a privileged position because they can make investment from retained earnings and bank borrowings, while new companies do not have easy access to finance. Without being subjected to the scrutiny of the stock market, big firms get bigger and for the emerging smaller companies, retained earnings and fresh cash injections from the controlling shareholders may not be able to keep pace with the needs for

more equity financing which only an organized market place could provide (Popoola, 2014). The Nigerian Stock market came into being in 1960 as the Lagos Stock Exchange and was changed to the Nigerian Stock Exchange in December 1977. It began operations in 1961 with 19 securities listed for trading. Branches were opened in key cities of the country. There are 13 branches of The Nigerian Stock Exchange (excluding the head office in Lagos). The NSE was growing consistently in order to meet the needs of its customers and to achieve the highest level of competitiveness. The Exchange operates fair, orderly and transparent markets that bring together the best of African enterprises and the local and global investor communities. The Nigerian Stock Exchange is poised to champion the acceleration of Africa’s economic development and to become ‘’the Gateway to African Markets’’ Wikipedia (2012).

The stock market is an organized market which provides facilities to the government and private investors to raise long term loans to finance its expenditures and for expansion and modernization of industries. It also exists to offer platform where suppliers of capital can quickly and easily restore their liquidity. The stock market serves the purpose of capital mobilization and allocation of the nation’s capital resources among various competing alternative uses. These vital functions for rapid real sector performance and development as performance by the stock market are in consonance with the aims and objectives for establishing the Nigeria Stock Exchange (NSE) in March 1960 (as the Lagos stock Exchange). NSE organizes the market for the buying and selling of stocks, shares, debentures and Government bonds, collectively known as securities. There are two markets within the NSE like other stock exchanges in the world.Hence, the study seeks to examine the relationship between stock market operation and real sector performance in Nigeria.

1.2 Statement of the Problems

There has been a growing concern on the impact of stock market on real sector performance. Stock market is often said to be the barometer of business direction, because of the benefit it provides to the firms and the economy at large, this made it to be a focus for the economists and policy makers. The development of stock market and apparently stock market enables government to mobilize long term capital for economic development, provide relevant information for appraisal (Inanga and Emenuga 1997).The role of stock market development has assumed a developmental role in global economies based on the impact the market exerted on the economic activity. Financial sectors pull funds from dispersed households and allocate them efficiently to dispersed entrepreneur and the tendency to spend money on ‘’White Elephant’’ will be curtailed as only economically viable projects could be finance from stock market. Stock market contributes to real sector performance through the specific services it performs either directly or indirectly. Notable among the functions of the market are mobilization of savings, creation of liquidity, risk diversification, improve dissemination, acquisition of information, and enhance incentives for corporate controls. Improving the efficiency and effectiveness of these functions through prompt delivery of the services can increase the rate of real sector performance (Oloyede, 2001; Ohiomu et al, 2011). Hence, the study seeks to examine the relationship between stock market operation and real sector performance in Nigeria.

1.3 Objectives of the Study

The main objective of the study is to examine the relationship between stock market operations and the real sector performance in Nigeria. The specific objectives are;

1.            To examine the relationship between Market Capitalizationand the real sector performance in Nigeria.

2.            To examine the relationship between number of listed securitiesand the real sector performance in Nigeria.

3.            To examine the relationship between volume of transactionand the real sector performance in Nigeria.

1.4 Research Question

1.            What is the relationship between market capitalizationand the real sector performance in Nigeria?

2.            What is the relationship between number of listed securitiesand the real sector performance in Nigeria?

3.            What is the relationship between volume of transactionand the real sector performance in Nigeria?

1.5 Research Hypotheses

H01:There is no significant relationship between market capitalizationand the real sector performance in Nigeria.

H02:There is no significant relationship between number of listed securitiesand the real sector performance in Nigeria.

H03:There is no significant relationship between volume of transactionand the real sector performance in Nigeria.

1.6 Significance of the Study

The study explored the relationship between stock market operation and real sector performance in Nigeria economy growth. Through the scope of the study was limited to the stock market will provide a broad view of the operations of the stock market in which will contribute to existing literature on subject matter by investigating especially the role which the stock  market plays the main important of this study is that it will provide recommendation to policy maker on ways to improve operations and activities of the stock market.

1.7 Scope of the Study

The economy is a large component with lot of diverse and complex parts; this research work will only look at a particular part of the economy (the financial sector).

This work did not cover all the aspects that make up the financial sector, but focused a segment of the market(stock market) and the Nigerian real sector performance. Our investigation covers the period1990-2018 due to the non-availability of some important data.

1.8 Organization of the Study

The study is divided into five chapters and organized as follows chapter one from, the introduction part, this is where the theme of the research work is given, including background of subject matter justifying the need for the study. This chapter comprises of the statement of the problem, Objectives of the study, statement of the hypothesis, scope and limitation of the organization of the study and definition of terms. Chapter two shall present related literature concerning the impact of stock market on the real sector performance and development of Nigeria, the chapter shall also present the empirical and theoretical framework for the study. The

research methodology which include ‘sources of data, method of data analysis and model of specification shall be outlined in chapter three while chapter four focuses on the presentation and analysis.Concluding comments in chapter five shall reflect on the summary, conclusion and recommendations.

1.8Definition/Limitation of Terms

Development: It refers to the sustained concerted actions of policy-makers and communities that promote the standard of living and economic health of a specific area.

Macro-economics: Is a branch of economic dealing with the performance structure, behaviour and decision-making of the whole economy.

Deregulation: This is when government reduces its role and allows industry greater freedom in how it operates.

Liberalization: It is refers to a relaxation of previous government restrictions, usually in areas of social or economic policy.

Market Capitalization: It refers to the total naira market value of a company’s outstanding shares of stock. Commonly referred to as “market cap,” it is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.

All Share Index: It tracks the general market movement of all listed equities on the Exchange, including those listed on the Alternative Securities Market, regardless of capitalization.

Stock Market: It is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowd funding platforms.

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