THE SIGNIFICANCE OF GLOBAL ECONOMIC MELTDOWN AND ITS
EFFECT ON THE DEVELOPMENT OF CAPITAL MARKET IN NIGERIA
( A CASE STUDY OF
NIGERIA STOCK EXCHANGE)
BY
EYIOWUAWI FATAI ADEMOLA
MATRIC NO: EKSU/EPE/12/0057
A
RESEARCH PROJECT SUBMITTED TO THE
DEPARTMENT OF ACCOUNTING FACULTY OF EDUCATION,
EKITI STATE UNIVERSITY, ADO EKITI.
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE DEGREE OF BACHELOR OF SCIENCE (ED) IN ACCOUNTING
DECEMBER, 2017
CERTIFICATION
This is to certify that this study was
carried out under my supervision by Mr. Akano and has been approved as meeting
the requirements of the faculty of Social Science, Department of Economics,
University of Ado-Ekiti Nigeria.
________________ _______________
Mr.
Akano Date
Supervisor
________________ _______________
Mr.
Adebosin W.G Date
________________ _______________
Dr.
O.A. Viatonu Date
Directorate of Degree Programmes
________________ _______________
External
Examiner Date
ii
DEDICATION
This research work is dedicated to God
the Almighty for giving me the grace, strength, the ability and most
importantly the direction during my period of study.
Also,
in memory of my late father, Mr. Kamorudeen Abayomi Eyiowuawi. May his soul rest
in perfect peace (Amen).
iii
ACKNOWLEDGEMENT
To
God be the Glory for thou art worthy, O Lord, to receive glory,honour and
power; For thou hast created all things, and for thy pleasure they are and were
created (Rev 4:11)
First
and foremost, all praises be to the supreme one, the most gracious and most
merciful, who has been the source and the brain behind everything from the
onset of this programme to the crucial stage. Halleluyah!
My
sincere appreciation goes to my beloved mother Mrs. Rotimi Eyiowuawi and to my
Father, Mr. Jimoh Folorunso Eyiowuawi, who had really been supportive over my
academic life and in all ramification of my life, God will grant them long life
and Prosperity in Jesus name (Amen).
I
am also indebted to my wife Mrs. Eyiowuawi Dauda Imoleayo and to my son
Eyiowuawi Oluwapemisere, I pray that God Almighty will continue to guide and
protect you and also bless you abundantly (Amen)
This
research work could not have been completed without the intellectual contribution
and support of many individuals whom I am indebted to. I would like to express my heartfelt gratitude and thanks
to my supervisor, Mr. Akano, for his invaluable guidance, support useful advice
and industrious review of this project.
I
express my sincere gratitude to all my noble lecturers in the department of
Accounting Education, more also to my HOD, Mr. Adebosin W.G.
I
would also like to convey my heartfelt thanks to my brother, sisters, cousins,
nephews, In-Laws and relatives for the support and silent prayers. I am
grateful to you all for your love, support and encouragement for my success in
this world and
iv
especially
in the hereafter.
I
am greatly indebted to my spiritual fathers such as Pastor Erinle Abiodun,
Pastor Taylor and more who have spiritually advsed, mentored and being used for
me to attain this enviable height of life, you are wonderful, my prayers is
that you shall remain vessels of honour now and evermore in Jesus name (Amen).
I
cannot but appreciate the efforts of Omotoprecious Ventures for the typesetting
of the work, and my friend; Akinmehin Omotayo, Shanusi Lawrence, Awoyemi
Olabode, Orishaheyi Odunayo, Oguntola Olumide and host of others, you are all
special. Thanks so much. God loves you!
Finally,
I would like to thank all individuals who have given me tremendous assistance
and cooperation that enable me to complete my project. I thank God for being
there for me. God bless you all!
v
ABSTRACT
This
research is on the impact of the Nigerian capital market on the Nigerian
economy. The study seeks to determine the trend of capital market over the
years, examine the relationship between capital market and economic growth, and
to proffer recommendations based on the research findings. The secondary data
source was used for this study chi square was used to present the data and to
find the significance and relationships between the different variables chosen.
The result shows that there has been a steady rise in the macro economic
variables considered i.e. gross domestic product, market capitalization, total
shares traded, public capital expenditure, gross capital formation, openness
(export plus import divided by GDP) and foreign direct investment. Also the
R-squared value of 96% implies the total variation in Real GDP is being
explained by the explanatory variables (i.e. MKT CAP, TST, PCE, GCF, OP and
FDI). However, only openness and GCF are the significant factors contributing
to Real GDP. Also correlation analysis shows a positive and significant relationship
between Real GDP, market capitalization and total shares traded and are also
significant at 1% level of probability. The policy implication of this is that
gross capital formation and openness are veritable variables that will have
impact on the Nigerian economy growth and development (GDP being used as a
proxy for economic growth). Keywords: Capital market, Gross Domestic Product,
Gross capital formation, Foreign Direct Investment
vi
TABLE OF CONTENT
TITLE PAGE
CERTIFICATION
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENT
CHAPTER
ONE: INTRODUCTION
1.1 background
to the study 1
1.2 statement
of the problem 4
1.3 research
questions 4
1.4 objectives
of the study 5
1.5 research
Hypotheses 5
1.6 significance
of the study 7
1.7 scope
of the study 8
CHAPTER
TWO: LITERATURE REVIEW
2.1 Introduction 10
2.2 Economic
situation after technological innovation
And
globalization 12
2.3 Role
of financial markets and their role in economy 15
vii
2.4 Theoretical
Framework 17
2.5 Conceptual
Framework 20
2.6 Global
economic meltdown 23
2.7 empirical
framework 25
CHAPTER
THREE: RESEARCH METHODOLOGY
3.0 Introduction 29
3.1 research
design 29
3.2 Sources
of data 30
3.4 Sample
size determination 31
3.5 sampling
techniques 31
3.6 restatement
of hypothesis 32
3.7 Method
of data analysis 32
3.8 statistical
procedure 33
3.9 Validity
and reliability of instrument
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 introduction 35
4.2 presentation
and analysis of data 35
4.3 test
of hypotheses 50
viii
CHAPTER
FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATION
5.1 summary
of Findings 63
5.2 conclusions 64
5.3 recommendations 67
REFERENCES 71
APPENDIX 76
ix
CHAPTER
ONE
INTRODUCTION
1.1 Background of the Study .
The original root of the current
financial mess is in the US-the world’s largest industrial-Military complex.
With an estimated GDP of $14 trillion, the US contributes about 25% of world
output. If, as is being forecast, the US economy contracts by jest 1% this will
imply a direct output loss of approximately $ 140 billion- equivalent to the
GDP of Pakistan, the 47th largest economy in the world! However, the crises are not restricted to the US.
Financial markets have tumbled and slumped the world over: from London to
Tokyo, Seoul to Sydney, Sao Paulo to Moscow, Bombay to Frankfurt etc. No
economy whether developed, emerging developing is, so far, insulated from what
Greenspan refers to as ‘once-in-century credit tsunami’.
The initial response of the policy
makers in Nigeria was weak, either they did not understand the crises or
underestimated its magnitude. In general, they thought of the crisis as only a
‘storm in a tea cup’, an aberration, a hiccup’. They insisted that the
“fundamentals of the financial system looked impressively strong’ even when the
capital market has been bleeding uncontrollably. The Minister of Planning
stated, rather insensitively, ‘there is no problem in the Nation’s capital
market. What we have presently is just corrections and
adjustments…..shareholders are getting dividends and bonuses and they are
happy……’ this was at a time when market capitalization had dropped from N12
trillion to less than N9 trillion. When they finally accepted there was a crisis,
they promised to take some unspecified ‘drastic and unusual action’ to stem the
global financial crises from causing havoc in the Nigerian financial system
(Abubakar, M., 2008).
That initial response was, to put it
midly, naïve. The country’s dependence on the export sector is very
significant: 99% of FX and 85% of local revenues are directly derived from
activities related to export of a single commodity, which is at the center of
the current financial crises, oil. It is estimated that 58.4% of Nigeria’s
exports are US bound and up to 25% to the Euro zone. 67% of our non oil exports
go to western Europe, 20% to Asia while ECOWAS accounted for only 11% in 2007.
The bulk of our FX reserve is kept in European Capitals where financial markets
have tumbled and banks distressed. How can anyone think we are insulated?
International financial crises which affect trade and investment flows are
bound to impact on the domestic economy.
The recent global financial crisis had
a deleterious impact on the world economy, especially on the financial system
in most countries, whether developed, emerging market or developing countries.
In the wake of the devastating effects of the crisis, governments as well as
central banks all around the world adopted several measures including some
unconventional ones to deals with the crisis. The effects of the financial
crisis still lingers to date as countries continue to struggle to bring back
their financial institutions and markets to a stage where public confidence is
fully restored and financial institutions, especially banks resume their
intermediatory role through resumption of lending activities (Sanusi Lamido
Sanusi, 2010).
Like most developing countries,
Nigeria felt the effects of the financial crisis largely through trade and
capital flows because of the openness of the economy and the near total
reliance on crude oil exports for government revenue and foreign exchange
earnings. The impact of the crisis through the financial system was not as
direct or devastating as those of developed and emerging market economies where
there was a near obliteration of the entire financial markets. However, when
the impact of the crisis permeated Nigeria’s financial system, the soundness
and stability of the of the system was seriously threatened prompting a
decisive intervention of the central Bank of Nigeria (CBN) to mitigate the
emerging crisis and restore public confidence (Sanusi Lamido Sanusi, 2010).
1.2 Statement Of The Research Problem
The
global economic recession stares everyone in the face; and no responsible
nation or leader will run from the reliability of the crisis by telling its
nationals that all is well. This consideration necessitated these questions:
1. What
is the impact of global economic meltdown on the Nigerian economy?
2. Did
the crash in the price of crude oil affect the Nigerian economy?
3. Did
the divestment of foreign investors affect the Nigerian economy?
1.3 Research Questions
The following research questions are posed:
I.
Is there any
relationship between share prices manipulation and the Nigerian capital market
crash?
II.
To what extent does trading
affects investor’s confidence in the Nigerian capital market?
III.
Is there any
significant relationship between the global economic meltdown and the crises in
the Nigeria Stock Exchange?
1.4 Objectives Of The Study
1. To
ascertain the effect of global economic meltdown on the Nigerian economy.
2. To
find out if the crash in the price of crude oil affected the Nigerian economy.
3. To
examine the impact of divestment of foreign investors on the Nigerian economy.
1.5 Research Hypotheses
A review of literature shows that
there are explanations for the crash in the Nigeria stock market beyond the
global financial meltdown. Also, studies have shown that the supervising body
is not performing its oversight functions effectively. In addition, Nigeria is
gradually being integrated into the global economy and hence have not insulated
from happenings in the global economy.
Therefore,
the following hypotheses were formulated to guide this study.
NULL:
H01: Manipulation of share price does not
significantly affect the Nigerian capital market crash.
H02: insider trading is not a significant factor in
destroying investor’s confidence in the Nigerian capital market.
H03: there is no significant relationship between
the global economic meltdown and the crises in the Nigerian stock exchange.
ALTERNATIVE:
Ha1:
manipulation of share significantly affect the Nigerian capital market crash
Ha2: insider trading is a significant factor in
destroying investor’s confidence in the Nigerian capital market.
Ha3:
there is significant relationship between the global economic meltdown and the
crises in the Nigerian stock exchange.
1.6 Significance
Of The Study
The problem of economic meltdown which
has visited every nation is a serious one that cannot be overlooked. This
problem will remain until the cause, the nature and how to mitigate the
residual effect has been completely taken care of.
This research work is based on the
impact of global economic meltdown on the Nigerian economy and attempt to shed
more light in this area will definitely constitute an important addition to
already existing researches in this area. The study as a result, will try
within the content of the meltdown on the Nigerian economy. The results
obtained from the study will contribute to the formulation and implementation
of more effective policies that will help in salvaging the dawned Nigerian
economy.
1.7 Scope Of The Study
This study is within the context of
the Nigeria economy. It will deal on the past and current effect of the global
economic meltdown on the Nigeria economy.
1.8 Limitations Of The Study
This research work will be carried out
alongside with other academic work in the school. This study encountered some
constraints as there will be difficulties in gathering some relevant materials
and information.
1.9 Definitions of Key Concepts
CAPTIAL MARKET: Is a market for
securities (debt or equity), where business enterprises (companies) and
government can raise long term funds
STOCK MARKET OR EQUITY
MARKET: is a public (a loose network of economic
transactions, not a physical facility or discrete) entity for the trading of
company stock (shares) and derivates at an agreed price; these are securities
listed on a stock exchange as well as those only traded privately.
FINANCIAL MELTDOWN: a situation in which
the supply of money is outpaced by the demand for money. This means that
liquidity is quickly evaporated because available money is withdrawn from banks
(called a run) forcing banks to either sell other investments to make up for
the shortfall or to collapse.
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