AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET
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AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN
DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET
AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN
DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET (A CASE STUDY OF NIGERIAN
STOCK EXCHANGE)
ABSTRACT
The Nigerian Capital Market is indeed a tool for economic
growth and development. Many researchers are of the opinion that the market has
done well, especially in terms of return on investments. If this is true, the
impact is supposed to be shown on the economy of the nation. The aim of the
research is therefore to evaluate the impact of regulatory bodies in developing
the capital market with particular reference to the Nigerian Stock Exchange.
Data were gathered on the activities of the Nigerian capital market for a
period of 5 years (i.e. 2005 – 2010) through studying existing documents and
the administration of questionnaires. Descriptive research methods were used.
The analysis of data was based on chi-square and the use of table and simple
percentages. The findings of the study revealed that the impact of the
regulatory bodies on the capital market has enhanced the listing of more
companies on the floor of the Nigerian Exchange. Finally, it is recommended,
among others that less stringent listing requirement be employed by the
Exchange to allow more participation of intending participants in the market.
TABLE OF CONTENTS
Title Page -
- - -
- - -
- - i
Declaration
- - -
- - -
- - ii
Approval Page - -
- - -
- - -
iii
Dedication
- - -
- - -
- - -
iv
Acknowledgement
- - -
- - -
- v
Abstract - -
- - -
- - -
- vii
Table of Contents
- - -
- - -
- viii
CHAPTER ONE
1.0
Introduction - -
- - -
- - 1
1.1 Background of
the Study - -
- - -
1
1.2 Statement of the
Problems - - -
- - 3
1.3 Objectives of
the Study - -
- - -
4
1.4 Research
Hypothesis/Questions - - -
- 5
1.5 Significance of
the Study - -
- - -
5
1.6 Scope of the
Study - -
- - -
- 6
1.7 Historical
Background of the Case Study - -
7
1.8 Definition of
Terms - -
- - -
- 11
CHAPTER TWO
2.0
Introduction - -
- - -
- - 13
2.1 Relevant
Concepts and Theories - -
- - 27
2.2 Sub Heads - -
- - -
- - -
27
CHAPTER THREE
3.0
Introduction - -
- -
- - -
30
3.1 Population and
Sample Size - -
- - 30
3.2 Sampling
Techniques - -
- - -
- 31
3.4 Sources and
Method of Data Collection - -
- 32
3.5 Methods of Data
Analysis - -
- - -
33
3.6 Justification
for the Choice - -
- - -
33
CHAPTER FOUR
4.0
Introduction - -
- - -
- - 36
4.1 Data
Presentation - -
- -
- - 36
4.2 Data Analysis
and Interpretation - -
- 37
4.3 Testing of
Hypothesis/Questions and Interpretation
43
CHAPTER FIVE
5.1 Summary -
- - -
- - -
- 46
5.2 Limitations of
the Study - -
- - -
48
5.3 Conclusion - -
- - -
- - -
49
5.4
Recommendations - - -
- - -
50
Bibliography - -
- - -
- - 52
Appendix - -
- - -
- - -
54
CHAPTER ONE
INTRODUCTION
1.1 THE BACKGROUNG
OF THE STUDY
The economic growth and development of any economy largely
depend on the ability to raise capital through the capital market. The Nigerian
stock exchange is a place where the enormous capital which is required to
operate the huge industrial and commercial cooperation today can be raised.
Osaze (1991) asserted that the emergence of the institution
of the Nigerian stock exchange is a spontaneous reaction of the enterprise
economies. The significance reaction of the stock exchange in an economy such
as our own cannot be over emphasized, for it is the bed-rock of large scale
investment. The Nigerian government hopes to create an economy which would
bring about the best in its citizens, compete effectively in the global market
and improves the standard of living of its people. An economy where hard work,
accountability and transparency would be the cardinal principle that both
foreign and local investors would be proud to participate in. once investors
looses confidence as a result of market abuse, the growth and development of
capital market would be adversely affected and considerable effort would be
required to restore confidence.
To be globally attractive and completive, the stock market
must be seen to imbibe practices which are globally acceptable. For this reason
government tries to put in place adequate regulatory mechanism to prevent or at
least minimize market abuse in order to uphold the integrity and confidence
that is very essential for the development of a viable and sustainable capital
market.
The Nigerian stock exchange is the centre point of the
Nigerian capital market. However, the Securities and Exchange Commission (SEC)
and the central bank of Nigeria (CBN) are the apex regulatory bodies to the
capital market. The tendency of our financial structure has been to channel
loans to industries of the past rather than the future (i.e. the rich third
world countries). This has become invariably clear that even those external
financiers are eroding, thus the need for our own structure in Nigeria to meet
up with the excess demand for capital to finance gigantic projects and
businesses.
The international organization such as the world bank group
are very conscious of the high risk involved in venture of loan given to third
world countries which will eventually evade payment of such loans.
There is every need to meet such demand and requirements for
smooth and long lasting system for sourcing of such requisite finance.
The study therefore examines in order to evaluate what
regulatory bodies have done to ensure the development and sustenance of a
viable capital market that will meet global challenges.
1.2 STATEMENT OF THE
PROBLEM
For an emerging market like Nigeria, the stringent control
measures put in place to regulate the activities of the Nigerian stock exchange
for the smooth running is a very huge problem that is hindering the development
of the market. The researcher hopes to seek for solution(s).
Regulators in our emerging market are also faced with a
problem of ignorance, Nigeria with a population of 160 million, and half of the
populations are ignorant about the investment opportunities that abound in the
capital market. This is also a monumental problem that the researcher hopes to
proffer solution to. Only if solutions to the stated problem are provided that
the research work will be significant
1.3 THE OBJECTIVE OF
THE STUDY
The objective of this study is to seek for the means of
relaxing the stringent control measure put in place to regulate the activities
of the Nigeria stock exchange to make it run smoothly and effectively.
To educate and sensitize Nigerians who are ignorant of the
investment opportunities that are available in the Nigeria capital market. If
about 160 million or half of the population invest in the capital market that
will bring about a viable development and sustained growth in the Nigerian
capital market.
1.4 RESEARCH
HYPOTHES/QUESTIONS
Hypothesis is the method used by the researcher to test and
prove guess statement in connection with the problem of the research being
carried out in this study to confirm on the hypothesis made.
NULL HYPOTHESIS Ho- the impact of the regulatory bodies on the
Nigerian capital market has not enhanced the listing of more companies on the
floor of the Nigerian stock exchange.
ALTERNATIVE HYPOTHESIS Hi- the impact of regulatory bodies on
the Nigerian capital market has enhanced the listing of more companies on the
floor of the Nigeria stock exchange.
1.5 THE SIGNIFICANCE
OF THE STUDY
The significance of this study cannot be over-emphasized. The
research will contribute to the existing body of knowledge in the capital
market administration; it will help the director general of the Nigerian stock
exchange and his or her management team by exposing some means through which
they can improve their performance towards meaningful achievement therefore,
this study will have the following significance, the study will evaluate the
impact of the regulatory bodies in developing a viable and sustainable capital
market. Whether it has helped increased the aggregate of listing of more
companies on the floor of the Nigerian stock exchange or not. When it is found
out to be negative solution will be suggested.
In this regards, the research work will be significant to the
following:-
1. The director
general and his or her management team.
2. The Nigerian stock
exchange (NSE)
3. Academicians. It
will serve the purpose of arousing deep thought and genuine interest on the
subject matter for further research.
4. The stock market
operators.
5. The public as well
need the knowledge to be able to assess the performance of the stock market
6. Government,
regulatory bodies such as the Securities and Exchange Commission and the
Central Bank on Nigeria
7. Non governmental
organization(NGOs)
8. Financial analysts
9. Foreign and local
investors
10. The general
public
1.6 THE SCOPE OF THE
STUDY
The scope of this research is limited to Nigerian Stock
Exchange. The researcher will focus on the evaluation of the impact of
regulatory bodies in developing a viable and sustainable capital market in
Nigeria. In essence, the researcher will look at the regulatory frame work put
in place to ensure the development of an effective and efficient capital
market. Between 2005-2010
1.7 HISTORICAL
BACKGROUNG OF THE CASE STUDY
The Lagos stock exchange (LSE) established in 1961 became the
Nigerian stock exchange (NSE) in 1977 as the hub of the capital market
activities where media and long term financial securities are traded. NSE
provide avenue where by sellers and buyers exchange securities at mutually
satisfactory prices thereby creating liquidity through its price mechanism.
Initially NSE had a set of requirement to be fulfilled before a company is
enlisted in the stock exchange market, but in 1985 another requirement for
enlistment were issued to allow smaller and particularly wholly individual
enterprise to be registered with the stock exchange. Securities that met the
initial requirement are referred to as first-tier securities, whereas
securities that could meet only the next set of requirement are referred to as
second-tier securities. As such there are two types of securities market in
NSE, First-tier securities market (FSM) and second-tier securities market
(SSM).
There was an attempt for establishment of Abuja stock
Exchange (ASE) apart from the Nigerian stock exchange (NSE) which is to be
named as Lagos stock exchange (LSE) but the federal government of Nigeria later
changed the ASE to Abuja commodity Exchange in 2001 however, the attempt for
establishment of ASE was done in order to enhance the efficiency of the stock
market activities in the country through healthy competition by the two stock
exchanges instead of monopoly by a single institution.
ISSUING HOUSE: issuing houses are institution that advise
assist and sometimes undertake the issuance of securities for companies that
want to raise funds in the capital market in Nigeria issuing house are
primarily merchant bank and stock brokerage firms which set some requirement
for a company before accepting to package and act as agent for the company in
the said issue. Some of these requirements include level of growth in
profitability adequacy of working capital, spread of risk of the venture, size
of company and soundness of management decision.
SHARE REGISTRARS: A share registrar could be the secretary of
a listed company or an institution, which maintains the register of
shareholders for a company that has raise funds from the capital market. The
registrar is responsible for issuing share certificate to the shareholders. In
Nigeria the major share registrars are three (3) big banks in the country.
(UBA, FBN and Union Bank). Stock brokerage firms and some trading companies.
UNIT TRUSTS: Unit trusts are new institutions arrangement in
Nigeria for mobilizing the financial resources of small savers for investments
in the capital market and managing such resources to achieve maximum return
possible with minimum risk through efficient portfolio diversification. Companies
and Allied Matters Decrees of 1990 provides the legal framework for
establishment of unit trusts in Nigeria. These trusts pool the funds of the
public by selling the shares of the trusts and investing the funds mobilized in
the capital market securities. The holders of trusts shares are given dividend
or capital gain on pro-rate basis.
STOCK BROKERAGE FIRMS: A stockbroker is a firm or an
individual who buys and sells securities on behalf of investors on the floor of
the Stock Exchange for a Commission called brokerage. Issuing houses originate
and sometimes underwrite securities issues, stockbroker distribute and market
securities. Issuing houses are also stock brokers in Nigeria and some affiliate
companies of merchant banks.
1.8 DEFINITION OF
TERMS
Private Placement: One of the pre-requisite for a company to
be listed on the NSE is for it to do private placement. This is done in private
without advertisement where a particular set of investors not necessarily the
public is informed about the offer and invited to invest in a company.
Initial Public Offer (IPO): An IPO is when a company is
offering its shares for sale for the first time to the general public. Many
companies e.g. Zenith Bank, NAHCO, Dangote Sugar Refinery Plc etc have had IPOs
in the past.
Right Issue: This occurs when a company wants to raise money,
but only through existing shareholders of the company. Shares are allocated to
already existing investors.
Bears and Bulls: This is an investment jargon used to
describe the market movement. When the market is bearish it means most stock
prices fell, but a bullish market is one in which most stock prices are going
up.
Market Capitalization: The market capitalization of a company
is what it is worth on the Stock Exchange. It is an easy way to evaluate the
worth of a company. It is simply the market price of the stock multiplied by
the overall issued shares of the company.
Blue Chip Company: These are shares of companies with long
track record of good performance, stability and earnings.
Listing: A company is said to be listed when its shares are
quoted on the floor of the stock exchange. This enables the shares of the
company to be easily traded on the stock market.
Call Price: The price at which a security with a call
provision can be repurchased by the issuer prior to the security maturity
period.
Net Asset Acquired: These are proportions of shares in
nominal value and the reserves as at the date of acquisition of the company.
Minority Interest: These are the net assets (i.e. shares
capital and reserves due to the other shareholders in the company other than
the holding company.)
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