THE GROWTH OF CAPITAL MARKET AND ITS CONSEQUENCES ON A DEVELOPING ECONOMY
ABSTRACT
The development of the stock exchange market is a pre-requisite to the growth and development of any economy. The capital marked comprises the primary market and secondary market.
The primary market is the market for new issues. It is a platform where a company or government can raise money for investment quoted companies can also raise funds. Both SEC and NSE are involved in the primary market activities. While the secondary markets are vehicles for providing liquidity to investors where existing securities are traded openly, the stock exchange provide free entry and exist for investors, through trading in secondary market. The establishment of the second tier security market in April 1985 for companies that cannot meet up with the listing requirements of the first-tier (main) security market, has encouraged the small and medium scale enterprise to raise money through the stock exchange market.
However, the industrial development of any country remains vital as it affects directly her economic growth and subsequently the standard of living of her populace. The industrial sectors of any country car only develop when the country has an efficient capital market (stock exchange). The efficient stock exchange market will give rise to capital formation, which is needed for investment in the country’s industries.
Hence, the growth of capital market and its consequences on a developing economy cannot waved aside, because it has play a significant role in the economic growth and development of Nigeria. Thus, it has helped in contributing more to corporate tax revenue, capitalization of industries, capital formation, and the growth of gross domestic product (GDP).
There are two pivotal roles that the capital market plays:
1. It signals the state of health of the national economy.
2. It provides a measures of the resilience of the rational economy by the extent to which economic activities rely on it.
In the first role, the trends in the market indicate in clear terms whether the economy is headed in the right direction or not, since its vagaries reflect the level of confidence in polices, their implications and implementation. In the second role, the market serves as an active and effective balance against the more regulated money market.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND TO STUDY
The capital market is a sub-set of the financial system that serves as the engine of growth in modern economies. The capital market is the segment of the financial market where medium to long-term financial instruments are created and/or traded, to meet the long-term funding needs of economic activities. The degree of effectiveness and efficiency of the market will determine the extent to which is will contribute to the process of economic growth and development.
Relative development of and reliance of economic activities on the capital market have been offered as important explanations of the interrelationship between macro-economic stability and soundness of the financial system. When national policy formulation ignores this, a major plank of opportunity for stabilizing the economy and fast tracking its growth would be lost or vitiated.
However, the market place in question, where this kind of transaction could take place in the Nigerian stock exchange.
The stock exchange provides the trading ground for the sale and purchase of securities thereby mobilizing funds for medium and long-term financing, the stock market is regarded as the most visible sign of the capital market, hence it naturally (as an operator) derive its role from the capital market.
Therefore, it the general belief if that capital market provides the capital, it does so through the help of its authorities and regulators, which are the ministry of finance, the Central Bank of Nigerian (CBN) the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC). Above all, the Nigeria Stock Exchange is seen as the most viable because it provides the market place for the re-sale of the transferable securities, thereby mobilizing the needed capital.
However, I believe the outcome of this reserve with be to explore the basis of the growth of capital market and its consequences on a developing economy of this nation Nigeria