AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET

1.1 Introduction

The Nigerian Capital Market is indeed a tool for economic growth and development. Capital market refers to that market for the mobilization of medium and long term founds from the surplus units for allocation to the deficit units of the economy (Kanu, 2004). The market provides opportunities for the issuance and resale of government securities, corporate bonds, stock, shares and, mortgage loan. The industrial sector plays a catalytic role in a modern economy and has many dynamic benefits crucial for economic development (Akinlo and Lawal, 2015). The industrial sector consisting of the manufacturing, solid minerals, crude petroleum and natural gas sectors is seen as a major backbone to national development owing to its numerous benefits such as employment generation, goods production for local and foreign use, source of foreign revenue (Solomon, 2015).

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

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1.2 Background of 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. The capital market is the market for dealings (that is lending and borrowing) in longer-term loanable fund. The market is the source from which industry obtains its capital for establishment, expansion and modernization and from which the government borrows on long-term basis for development purpose. The possession of industrial capabilities by an economy is considered an important potential for improved economic development. Indeed, one of the distinguishing factors between developed and developing economies is the acquisition of industrial know-how. The benefits of appropriate industrial base for an economy lies in its combination of suitable technology management techniques and other resources in order to move the economy from a traditional and low level of production to a more automated and efficient system of mass processing and manufacture of goods and services. This explains why every economy seeks to expand if the economy is already industrialized (Idyu, Ajekwe, and Korna, 2014). Okoye, Nwisienyi and Eze (2013) contributed that through the establishment of industries, both small and large, a nation could produce most of the goods and services its people require. However, for industries to expand and for industrialization to take place, easy access to long-term capital is required.

Capital according to Babalola and Adegbite (2002) provides the impetus for the effective and efficient combination of factors of production to ensure sustainable growth. Capital in the view of Orjih (2001) can be classified into broad categories based on tenure viz; long term and short term capital. The long term capital of a firm is committed to investment in fixed assets. It includes the shareholders’ funds and long term loans. On the other hand, short term capital is applied for investment in current assets such as cash, marketable securities and short term credits.

Donwa and Odia (2010), assert that the Nigerian capital market provides the necessary lubricant that keeps turning the wheel of the economy especially the industrial sector. They stressed further that it not only provides the funds required for investment but also efficiently allocates these funds to projects of best returns to fund owners. This allocative function is critical in determining the overall growth of the economy. Yadirichukwu and Chigbu (2014) posit that for sustainable economic growth, funds must be effectively mobilized and allocated to enable businesses and the economies harness their human, material, and management resources for optimal output.

Okereke and Onyiuke (2000) posits that the cheap source of funds from the capital market remain a critical element in the sustainable development of the industrial sector. She enumerated the advantages of capital market financing of the manufacturing sector to include no short repayment period as funds are held for medium and long term period or in perpetuity, funds to state and local government without pressures and ample time to repay loans. Okoye, Nwisienyi and Eze (2013) see capital market as the major source of capital for industries in Nigeria and noted that substantial capital is required either to develop or import technological know-how which is needed for industrial development.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Impact of Regulatory Bodies in Developing a Viable and Sustainable Capital Market.

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1.3 Statement of Problems

Investigation revealed that 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. Although the capital market has contributed significantly to the mobilization of funds for industrial development of the Nigeria economy, certain lingering problems still constrains its optional operations. They include:

1. Infrastructural Inadequacies: This has resulted to delays in effecting transactions between issuing houses brokers, dealers, registrars, investors and their bank. The drag in the delivery service discourages many investors who sometimes view with distrust their registrars and brokers when share certificates are undelivered or proceeds of share sold not delivered promptly. Also infrastructural limitations insulate many investors especially those in the rural areas from broker dealer thereby, trading in securities which would have aided development.
2. Ignorance also on the part on most members of the Nigerian public as to the meaning of shares and stocks as well as benefits derivable from market operations
3. Reluctance of the Nigerian businessmen to go to the public for the fear of losing control of family business.
4. Macro-economic instabilities and high cost of raising funds in the market
5. Political instability which makes returns and premiums uncertain and thereby discouraging prospective investors both local and foreign.

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1.4 Aim and Objectives of Study

The aim of the study is to evaluate the Impact of Regulatory Bodies in Developing a Viable and Sustainable Capital Market. In achieving this aim, the following specific objectives were laid out as follows to determine:

1. Contribution of Impact Regulatory Bodies on capital market to economic growth;
2. The possible strategies to enhance the efficiency of the capital market; and
3. The relevance of usefulness of Nigerian stock market in the developing economy.

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Does the lick of public awareness militate against the realization of the potential of the stock marketing fund mobilization?
• Does the capital market play any role in the mobilization of fund for industrial development a country?
• Political instability, does it influence the development of a country capital market?
• What are the contributions of impact Regulatory Bodies on capital market to economic growth?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: There are no significant contributions of impact Regulatory Bodies on capital market towards economic growth
• H1: There are significant contributions of impact Regulatory Bodies on capital market towards economic growth

Hypothesis Two

• H0: There is no significant relationship between market capitalization and growth of industrial sector output in Nigeria
• H1: There is significant relationship between market capitalization and growth of industrial sector output in Nigeria

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1.7 Significance of Study

This study will be of importance to individuals, private and public companies, financial institution, government parastatals, as it will enable them to understand the role which capital market plays in fund mobilization for industrial development. The part of stock exchange in mobilizing the funds needed for investment by them. It is important also because it will encourage the investors to invest into the stock market with the full assurance that their investments are intact.

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

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1.8 Scope of Study

The scope of this research is focused on the Evaluation of the Impact of Regulatory Bodies in Developing a Viable and Sustainable Capital Market in Nigeria.

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1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

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1.10 Definitions of Terms

Some terms or concepts have various meanings depending on who or how it is used. The one in thus study are used in the following context.

Capital Market: It is used interchangeable with the stock market which is an integral part of the countries financial system where money securities are bought and sold.

Share Holder: A shareholder is one who holds a share certificate, who has a legal title to shares. It is also called or referred to as stock holder

Share Index: It is made up of a number of bonds, stocks or share selected from a list of various trades or business with their market price added together

Speculation: It is the buying and selling of goods with the object of gaining from differences in prices.