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Chapter One


1.1 Background of the Study

Nigeria with a population of over 140 million needs capital resources to be allocated among numerous competing alternative uses for a rapid and indeed efficient economic growth and industrial development.

This explains the objective of this topic, which seek to appraise the stock exchange market as a vehicle or means for mobilization of funds to various industries and investors, as to enhance industrial development in the country.

Stock exchange market is a sub-sector of the financial market, which deals in long-term securities and procedures for financial long-term investments. In a broad sense therefore, the capital covers all services rendered by financial institutions and facilities, which exists for mobilizing long-term funds and for channelling each funds to various industrial or economic unit of the ultimate users. Where this can be sourced is stock exchange market.

The Nigerian Stock Exchange (NSE) is an important regulatory body in the Nigerian capital market. It is the pivot of the development in the Nigerian capital market in terms of providing avenues for investment and divestment in diverse stocks and shares. On the other hand, stock market is that aspect of capital market, which provides facilities for the mobilization and transfer of long-term funds that, involves securities.

It can be termed as a market for short-term, medium term, long-term and permanent loans to the government, industry and commerce.

The stock exchange market can be further sub-divided into two, the primary market and the secondary market. The primary market deals with the selling of new securities when they are first offered by the issuing firms, while secondary market deals with second hand or old securities.

Provision of capital is a strategic factor in stimulating the growth of industry through stock market. Even since the World War II, when development programmes of third world countries took on acceleration turn, there has been serious concern for the availability of funds for industrial development. This in turn depends on the ratio of saving national income both of which must increase in such a way to make for higher growth with a given level of savings.

Having established that savings, there must be institution and policies to further induce and make possible economically justifiable savings by household and private sector and how and where funds can be sourced.

It is against this background that some institutions, financial and non-financial are designed to coordinate and cooperate in order to bring efficient operation of capital market and this led to the establishment of Nigerian stock exchange market, Lagos.

The Nigerian Stock Exchange, formerly known as Lagos Stock Exchange was incorporated in September 15, 1960. On 5th June, 1961, the exchange commenced operations with three industrial securities, two federal government bonds and seven other securities, which were subjected to United Kingdom’s stamps duty.

In stock exchange, there are three classes of membership, thus foundation members, ordinary members and dealing members. There are other bodies licensed by the council of stock exchange to deal in share, stock and any other securities that are quoted on the exchange. These are broker and jobber.

Since the stock market exists to facilitate the intermediaries of funds between savers and investors in financial institution, it is an essential organ in industrial development of an economy.

1.2 Statement of Problem

As a way of improving the activities of stock market, there have been series of developmental corrective measures being introduced by the federal government, which include the following: deregulation of the market, introduction of the second-tier market (SSM), promulgation of decree No. 25 of 1988 on privatisation and commercialisation and selling up of panel in 1996 to review agencies of the market and codify all laws relating to securities dealings.

With all these innovations, the stock market has grown significantly in terms of market capitalisation volume of long-term debt stock sold, volume of transaction and the number of operator (e.g. stockbroker). It, however, remains a relatively small source of long-term finance.

It is against this background that in the course of this study, some problems associated with the Nigerian stock market have been identified. These are:

The Nigerian Stock Exchange lacks infrastructural facilities such as reliable telecommunication network, data storage capacity, etc. From where required information can be retrieved when necessary.

The constraining regulatory environment of the securities and exchange commission affect the volume and value securities offered.

The securities law and the presence of unregulated informed markets such as (meeting, issue union and community group) with co-existence of the modern financial institutions, Bank Insurance Firms, saving institutions) makes it difficult to know the extent the organised stock market has created investment.

Also, the market functionaries and the low interest rate structure leads to mismanagement in the market.

The educational disparity among the populace makes it almost impossible for some people to understand investment possibilities.

Other problems inhibiting stock market include:

  1. Inadequate legal framework
  2. The high positive transaction cost
  3. The rigorous listing requirement, etc.

1.3 Objective of the Study

This research is wholly undertaken to examine the stock exchange market and its impact to the industrial development of Nigeria. After the examination, one should be able to know what the Nigeria stock exchange look like, the impact it has made so far in the industrial development and on the wholesome existence and then make necessary recommendations.

These are to be done with the following objectives in mind:

  1. To critically evaluate the Nigerian stock exchange with regard to its operations and the extent it has achieved the objective of mobilising funds to industries.
  2. To examine the nature and rate of government intervention in capital market and how it affects the economy’s and industrial development.
  3. To examine the problems confronting stock exchange market in the Nigerian economy.

1.4 Significance of the Study

  1. This study is carried out as a partial fulfillment of the award of B.Sc degree in Banking and Finance.
  2. It is to enable the student to have thorough idea of stock exchange market.
  3. To increase the volume of literature in library.
  4. To help the participant and operators of the market assess their performance and the efficiency of the market and then develop viable policies that will be beneficial to the generality of the people.

1.5 Scope and Limitation of the Study

The study concentrates on Nigerian Stock Exchange for a specified period of time. This is the nation’s capital market. Brief mention shall, however, be made to other bodies in the Nigerian capital market such as Securities and Exchange Commission (SEC) which is the apex regulatory body of the capital market and other subsidiary institutions and participants in Nigerian Stock Market.

The limitation of this study includes the inability of the researcher to meet the top officials in Stock Exchange Lagos who should have provided adequate and useful information and relevant and unco-operative attitude of some of the workers in releasing data information relevant to the study.

Another limitation to this study is lack of adequate funds to support the study, high transportation cost to stock exchange office of Lagos, cost of Photostatting and other miscellaneous expenses.

This research is limited to one academic year, hence the problem of time is even more amplified when considered that the research had to attend to other aspects of her study other than the research work alone since both research work and academic studies are run concurrently.

In conclusion, the study is limited to the information published in the Nigerian Stock Exchange Office Lagos Annual Report and Statement.

1.6 Research Questions

The following research questions will act as a guide to the issue to be treated in this study.

  1. To what extent has stock exchange contributed in industrial development?
  2. To what extent has Nigerian stock market served as a network of mobilization of fund?
  3. Does low level of education be attributed as a reason for low level of investment in Nigeria?
  4. Does low level of investment in Nigeria industries be attributed to lack of confidence in Nigerian capital market?

1.7 Hypothesis

To achieve a meaningful objective of this work, a number of hypotheses were drawn.


H0 – Null hypothesis

H1 – Alternative hypothesis

Hypothesis 1

H0  –  The Nigeria Stock Exchange has not contributed to industrial development in Nigeria.

1  –  The Nigerian Stock Exchange has contributed to the industrial development in Nigeria.

Hypothesis 2

H0  –  The Nigerian Stock Market does not serve as a network of facilities for fund mobilisation.

H1  –   Nigerian Stock Market does serve as a network of facilities for fund mobilisation.

Hypothesis 3

H0  –  Low level of education does not affect the rate of investment in the capital market.

H1  –   Low level of education affects the rate of investment in the capital market.

Hypothesis 4

H0  –  Low rate of investment in Nigerian capital market is not associated to lack of confidence in Nigerian Stock Market.

H1  –  Low rate of investment in Nigeria capital market is associated with lack of confidence in Nigerian Stock Market.

1.8 Definition of terms

There is need to define some operational terms and some of the concepts used in this work because they were used contextually.

SECURITIES – These are income-yielding financial instrument (share, bond) showing a legal claim or holding in a particular property or investment.

QUOTATION – This is the price at which a given securities, is currently traded on the Stock Exchange Floor.

STOCK BROKER – An agent knowledgeably and trained on securities on behalf of investors in return for a brokerage fee of commission.

JOBBER – These are actual dealers in securities but transact business only with the broker who act on behalf of the investor.

SECOND-TIER SECURITY MARKETS – This is listing small and medium scale enterprise for companies that are not allowed to raise capital in excess of five million naira.

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