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IMPACT OF THE NIGERIAN STOCK EXCHANGE ON CAPITAL FORMATION (1990 – 2014)

ABSTRACT

The Nigeria Stock Exchange has been a key player in Nigerian capital market. It does not only bring buyers and seller of stocks, equity and other financial commodities together, it creates a platform for evaluating business outlook in the economy and at the same time opens a window of opportunity for foreign direct investment inflow into the country. In order to assess the empirical influence of the above institution, this study is interested on the role of stock exchange market on capital formation in Nigeria. The Autoregressive Distributed Lag model (ARDL) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) econometric technique was adopted to guide the study which used Eviews 8 econometric software for data analysis. Quarterly time series data (1985Q1-2014Q4) from Central Bank of Nigeria Statistical Bulletin 2014 was used. After necessary pre- and post diagnostic tests were carried out, the results show that stock market capitalization and total value of shares traded have significant positive effect on growth of gross capital formation in the short-run and long-run period. It was also found that changes in the same stock market variables have significant influence on the volatility of capital formation in Nigeria during the period of study. Among estimated macroeconomic variables, only interest rate was found to influence the volatility of gross capital formation. Hence, the study concluded that Nigeria Stock Exchange market is a vital instrument for meaningful growth of capital formation in Nigeria. As such, it was recommended that government should come up with more effective policy framework to promote activities of the stock exchange market in order to guarantee sustainability in capital formation in the country.

CHAPTER ONE
INTRODUCTION

1.1 Background to the Study

A well-developed financial system is often at the centre of any modern free enterprise economy. An efficient financial system helps to increase the standard of living and thus the society’s well being, by providing an efficient system of allocation of available resources or funds for the production of goods and services. The financial markets bring together the savers and the investors and by interaction of these two groups in an open market, the accumulated aggregate savings are channeled into viable and most desirable investment for the growth and development of the economy. In financial markets, financial assets are exchanged. A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

Mobilization of resources for national development has long been the central focus of development economists. The stock market is an economic institution, which promotes efficiency in capital formation and allocation. The stock market enables government and industry to raise long-term capital for financing new projects, and expanding and modernizing industrial/commercial concerns. If capital resources are not provided to those economic areas, especially industries where demand is growing and which are capable of increasing production and productivity, the rate of expansion of the economy often suffers.

A unique benefit of the stock market to corporate entities is the provision of long-term, non-debt financial capital. Through the issuance of equity securities, companies acquire perpetual capital for development. Through the provision of equity capital, the market also enables companies to avoid overreliance on debt financing, thus improving corporate debt-to-equity ratio. The stock market enables governments and industry to raise long-term capital for financing new projects, and expanding and modernizing industrial/commercial concerns. 

Almost all economists lay 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 its current productive activity to the needs and 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 equipment, 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 society’s currently available 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. 

This research focuses its attention on Nigerian Stock Exchange which is 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 it has been variously described as the “hall mark” or the heart of the capital market. Thus, the rapid economic development of any economy depends, among other things, on ready access to adequate financial resources (Alile & 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 & Momoh, 2009). The mechanism of stock exchange came into existence to enable investments, which were inherently illiquid to become liquid through reconversion into cash at the decision of the investor without inconveniencing the company (Olowe, 1997).  It is also necessary to note that the surrounding or environment of a student influences their performance. Learning and reading begins in school but the first foundation of the child begins at home (Binkley 2008).

1.2 Statement of the Problem
The poor academic performance of pupils in schools in Lagos educational environment has recently become a cause for serious concern. It has been observed by the researcher that some senior primary school pupils cannot write or read a letter. Others attend as many as three schools within their primary school career due to constant failures in a bid to avoid the shame of repeating a class. It has also been observed by the researcher that in Lagos and some other parts of Nigeria private school proprietors tend to boost the population of their schools by admitting students without a testimonial or statement of result and award fictitious results to ensure the promotion of such pupils to the next class. This ugly development has been attributed to many factors such as teachers’ poor attitude to work; poor infrastructure, examination malpractice; lack of qualified teachers; truancy; poor motivation; Non-payment of salaries and the neglect of instructional media by teachers etc. The secondary school features the highest number of impressionable learners and consumes a greater percentage of the government budgetary allocation to education, hence the need to investigate the influence of environment on the academic performance of pupils in Lagos L.G.A.

1.3 Research Questions
The following research questions were formulated to guide the research.
1.) Does noise pollution hinder the development of memorization skills by pupils?
2.) Does the presence of rich but illiterate businessmen discourage excellent academic performance or behaviour in class?
3.) Do Pupils who indulge in so much domestic chores have poor academic performance than pupils who do not?

1.4 Objectives of the Study
The general objective of this study is to investigate the influence of learning environment on the academic performance of secondary school pupils. The following specific objectives are to guide the study:
1. To determine the extent to which a noisy environment hinders the development of memorization skills by secondary school pupils.
2. To find out how the presence of illiterate but rich businessmen affects the behaviour of primary school pupils towards learning.
3. To ascertain the ways in which the home environment affects the performance of primary school pupils at school.

1.5 Significance of the Study
This study on the influence of environment on the academic performance of pupils in secondary school will facilitate learning by enriching the knowledge of parents on the adverse effect of child labour and hawking on learning. It will create awareness on the importance of interaction and co-operation between parents and teachers for the success of pupils in learning activities. It will improve the attitude of pupils towards academic work through internal and external motivation of teachers and parents. It will contribute to the volume of existing literature on the role of environment factors on pupils learning. It also will sharpen teachers understanding of the root causes of some academic problems in the secondary school. The insight derived from that will help to prefer better solution to the problem. It will promote the development of the spirit of hard work, self-reliance and self-control among primary schools pupils.
The result gotten from this study will challenge the ministry of education to live up to her duty by making the infrastructure available for the creation of better learning environment. This study will highlight the importance of community participation through the P.T.A. in school affairs to check deviant behaviour resulting from the environment. Finally, it also will highlight the danger of monetized value system with its attendant; ‘corruption’ because money is only useful and valuable in the hands of an informed person.

1.6 Definition of Concepts
The following concepts were defined:
Influence:
According to the Sun Mobile Dictionary, the term influence is the “power to affect another”. The Oxford Advanced learner’s dictionary defines influence as “the effect that somebody or something has on the way a person thinks or behaves or on the way that something works or develops”. The concept influence, as related directly to this study, refers to the power the environment has on the academic performance of pupils,more especially, in all Local government area of Lagos State.
Environment:
The Sun Mobile Dictionary defines Environment as “surrounding, things, conditions, etc.” The Oxford Advanced learner’s dictionary defines it as “the conditions that affects the behaviour and development of somebody or something; the physical conditions that somebody or something exists in”. In essence, the concept environment refers to the surrounding of secondary schools in Lagos state. It can also be defined as the conditions that affect the behavior and development of pupils especially in primary schools.
Academy:
The Sun mobile dictionary refers to the concept academy as a “school”. A school on the other hand is a place of learning. A school is a place where children are thought (Oxford mini School Dictionary: 2007). A primary school can therefore be called an Academy.
Performance:
The Oxford advanced learner’s dictionary defines the term performance as “How well or badly you do something”. Performance as directly related to this study can also be defined as how well or badly pupils of Primary schools do in there academic work.
Academic Performance:
This can be define as the score a child or individual obtain in test or examination based on his or her learning experiences.
Socio status:
This is the total state of an individual based on inequality in terms of occupation, level of education and other societal issues defined by the environment.
Socio- cultural background:
This is the social and cultural makeup of an individual in relationship with his or her environment.
Education:
This is a formal instruction or training given to a child in school. According to the 6th edition of the Oxford dictionary, it is a process of teaching, training and learning, especially in schools or colleges to improve knowledge and develop skills.

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