CHAPTER ONE: THE ROLE OF STOCK EXCHANGE MARKET IN A DEVELOPING ECONOMY

1.3           OBJECTIVES OF THE STUDY

The main objective of this study is to appraise THE ROLE OF STOCK EXCHANGE MARKET IN A DEVELOPING ECONOMY ( A  CASE STUDY OF THE NIGERIA STOCK EXCHANGE ). Other critical objectives that will be looked into are;

1.     To investigate the role of stock market size and liquidity on economic growth in developing countries.

2.     To find out if there is a relationship between stock market liquidity and economic growth.

3.     To examine if there is a relationship between the stock market and economic growth and development in developing countries.

4.     To estimate the relationship between the economic growth and it potential determinants.

5.     To find out if Nigeria stock exchange is able to contribute to the economic growth and development of Nigeria.

1.4               STATEMENT OF THE PROBLEM

Considerable debates exist on the relationship between stock market and economic growth.

Basically, the debate was been created on whether it is the stock market that leads to the economic growth or vice versa. In recent years, stock market development is a common feature of financial and economic development in the developing countries.

Nevertheless, some analysts discover that the emerging market have little positive  and potentially a large negative impact on economic growth. Other analysts argue that, because not much corporate investment is financed through the insurance of equity (Mayer, 1988) stock markets are unimportant for economic growth. The magnitude dependency of the performance of stock market on economic growth is valuable information to policy market. Developing countries stock markets have been reputed to be insusceptible to economic shocks. Being vulnerable to external shocks, the strength of stock market is therefore in jeopardy. The linkage between each country’s measure of stock price and economic activity is an important area to study in order to obtain mean ingful findings. Thus far, empirical studies on the relationship between stock market and economic growth have not been carried out to the extent that certain conclusion can be achieved and agreed most; this is particularly true in developing countries like Nigeria.

Developing countries stock exchange now face the challenges of integration and the need for better technical and institutional development to address the problem of low liquidity. Areas where problems persist include the lack of harmonization of legislation such as bankrupt and accounting laws and an un liberalized trade regime. Deficient electronic trading system and central depository system are not available. Furthermore, domestic financial liberalization such as steps to improve the legal and accounting framework, private sector credit evaluation capabilities, and public sector regulatory oversight seems not to be given due consideration.

1.3                 SIGNIFICANCE OF THE STUDY

The significance of the study is to show that the stock exchange has contributed positively to the economic development of developing countries like Nigeria.

Many Nigerians do not know the operation of the stock exchange and this therefore makes the study relevant because of the effect detailed explanation of the operation of the Nigeria stock exchange.

The main significance of this study is to

1.     Attempt to measure achievement of Nigerian stock exchange in accordance with the socio economic aspiration of the country.

2.     Provide information to broader the knowledge and high degree of awareness.

1.4    STATEMENT OF HYPOTHESIS

The research hypothesis for study is:

Hypothesis one

HO: there is no significant relationship between stock market size and economic growth.

H1: There is significant relationship between stock market size and economic growth.

Hypothesis Two

HO: There is no significant relationship between stock market liquidity and economic growth.

H1; There is significant relationship between stock market liquidity and economic growth.

Hypothesis Three

HO: There is no relationship between the stock market and economic growth and development in developing countries.

H1: There is a relationship between the stock market and economic growth and development in developing countries.

Hypothesis Four

HO: There is no relationship between the economic growth and its potential determinants.

H1: There is relationship between the economic growth and its potential determinants.

1.5    JUSTIFICATION OF THE STUDY

Therefore, the justification of this study can add to the existing body of the literature and can serve as a starting point on which future studies can be built on the effect change in consumer attitude towards the role of Nigeria Stock Exchange in economic growth and development of Nigeria.

This study will assist all stakeholders of the importance and relevance of the stock market and how it enhances the economic growth of developing countries especially banks, stock brokers and other institution that have relationship with the stock market to understand the major effects of the stock market in economic development. As the survey conducted was only restricted to the Nigeria stock exchange.

The research is also significant because it is a potential fulfillment for the award of Higher National Diploma (HND) in Banking and Finance. The study will pose challenges to other researchers to carry out more research in related fields. It will also add to body knowledge on the subject; since knowledge is a continuous process.

                            

1.6   LIMITATION AND DELIMITATION OF THE STUDY

A research work of this nature cannot come to an end without limitation. The researcher encountered numerous problems which affected the smooth running of the work. These problems include difficulty in procuring material for the project, time factor and financial constraints.

There was lot constraint as to getting information and materials for the job. The researcher made series of consultations and visit to most renowned bank, stock broker and institution to acquire the needed information.

Combining academic work with job is no doubt a thought provoking issue, as it has to do with time. Actually, a lot of time was wasted as the researcher visited the organization and individuals together with the Nigeria stock Exchange, kano to obtain valuable information for the project.

The researcher would have obtained more information than what is obtainable here due to lack of money to visit all branches of Nigeria Stock Exchange and agencies located a bit far from the researcher place of resident.

                         

1.7   DEFINATION OF TERMS (WHERE NECESSARY)

STOCK MARKET: The market in which shares are issued and traded either through exchanges or over the counter market. Also known as equity market, it is one of the most vital areas of a stock market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the company and the potential of gains based on the company’s future information.

STOCK EXCHANGE: Organized and regulated financial market where securities (bonds, notes, shares)are bought and sold at prices governed by the forces of demand and supply.

LIQUIDITY: The degree to which an asset or liquidity can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

ECONOMIC GROWTH: An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be measured in nominal terms, which includes inflation, or in real terms, which are adjusted for inflation. For comparing one country’s economic growth to another, GDP or GNP per capital should be used as these take into account population difference between countries.