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The essence of this project is to evaluate the efficiency of capital market in economic development in Nigeria. Accordingly, some of the objectives of the study are to highlight the activities of the Nigeria capital market in relations to economic development as a means of providing credit and investment funds in the economic of the country.
This project also tends to show the efficiency of the Capital Market in Nigeria particularly the development of National building and economic and growth pursuance. It has impacted positively on the country.  


Over the years, credit institution exit in the country (Nigeria) even during the time of barter, goods were given in exchange for a promise of reimbursement at a futune date and where other assets are not available or acceptable as collateral. Children were often used with coming of Europeans into the country and the introduction of currency, credit became better organized with the emergency of local money lenders and agricultural cooperatives whose surpluses were given out as loan. A formal capital market did not develop in Nigeria until the eve of independence because the economic policy of the British colonial government in the country was geared towards the interest of the imperial government in England.

The real concept of the capital market as it is known today was introduced into Nigeria 1946 in when the ten year plan local ordinance was promulgated. This allowed for the floating of local loans to the tune of N300,000,000 (three hundred million naira). The units were multiples of 10 (ten pounds), at an interest rate of 3½% with a maturity of between 10-15 years. Incidentally, there was an over subscription by over 500,000 though not surprisingly the bulk of the response came from the United Kingdom (UK) and not within the country.

In 1951, there was another attempt at capital accumulation in public sector when a local development fund was created in order to finance four commercial corporations. Payment arising from revenue were paid into the fund and soft loans, with easy repayment terms, were advanced to these corporation from the fund between 1946 – 1956. The British government was said to have carried out an open door policy and this was described as the first conscious effort by the British to give investment opportunities to Nigeria and revolutionized the capital market. Despite this growth held back in the capital market and industrial sector, because growth would have had the effects of reducing the market of British goods.

By and large, the Federal Minister of commerce and industry sponsored a study in 1958 under Prof. Barback to look into the means of fostering a share markets in Nigeria. The favourable report of the Barback committee led to the formation of the Lagos stock exchange in 1960 it was incorporated in the same year through the efforts of the Central Bank of Nigeria (CBN). Formal operations, however did not commence until in June 1961 with securities worth N80 million.


Capital market can be defined as a market for long term funds used in the financing of business and government such financial intermediaries as saving back, savings and loan association collect the funds insurance companies, stock brokers and investment companies, stock brokers and investment companies which channel them to users. The lender of long term funds receives claims such as stock, bonds, mortgages savings accounts and insurance policies.

The capital market is a significant part of the financial market, which promotes economic growth and development. This is achieved among the things by shifting society’s saving into a higher investment returns i.e. it improves resources allocation. The development capital market assist in the mobilization and allocation of saving among competing users, which were critical to the determination of growth and efficiency of the economy for instance, capital market has helped to provide the platform where government and the public may raise long term funds for their investment needs. The state, local government and their parastatals use this market to raised funds for their development projects.  Funds for their development projects.

The Longman dictionary of contemporary English defines economy as the system by which a country’s money and goods are produced and used.


The capital market may be divided into the broad sub market and commodity market as depicted in the diagram.

Stock market commodity market

The stock market is the sector of the capital market where stocks, bond, funds, etc and derivatives are traded.


When it is developed, the stock market has be segment depicted in the diagram below:

·                    Primary Stock Market

·                    Primary Secondary Stock Market

·                    Secondary Stock Market

Primary Stock Market: This is the segment where funds are sourced through the issuance of a new security (equity/debt fund) and the proceeds of offer go to the corporate issuer. Both securities and exchange commission and the Nigeria Stock Exchange and involved in the primary market activities. The issuing houses and stockbrokers also plays a prominent role.

Secondary Stock Market: The secondary stock market is the segment where securities holder dispose of their holding and the proceeds of sale go to the individual and not the corporate issuers of the securities. It is securities stock exchange market where the offenor (seller) exchanges his stock, security for money.

Primary Secondary Stock Market: This segment accommodates secondary market transaction that are effected off the floor of a security exchange using the primary market infrastructure of flow-chart. An excellent example of primary secondary operation is shown during government privatization programme.


The scopes of this study are as follows; and to start with, is the principal instrument used for raising funds in capital market.

a.           Equity Floatation

This is usually through the ordinary shares or common stock, which refers to the capital of the owners of the firm. They broadly give the holder the residual ownership of the assets and earning of a company. The owner is by virtue of this share conferred with some other right: the right to receive notices of Annual General Meeting (AGM) and vote at such meetings. Their returns are usually through payment of dividend, bonus issues and right issue as the case may be. And these returns are expected to rise along with time, both from income and capital point of view, the ordinary shareholders has at least some protection against depreciation in the value of money. Equity is the value of an asset of a company after all debts, the securities are perpetuities since they exist in perpetuity until the holder decides to sell or until the company goes into liquidation. Thus, they are viewed as a source of permanent capital with no contractual payment by the firm. An interesting fact about equity finance is the fact that the company is not under pressure to pay back the money to its. Shareholders. It is only that it has to declare dividend on profit after consideration for cash flow requirement sources of finance, particularly in the era of volatile interest rate.

b.          Debt Conversion to Equity

The debt conversion program was introduced by the federal government to reduced the country’s external debt obligation. Under this programme, interested investor can buy Nigeria’s off shore debt for conversion into naira for equity investment in qualifying projects in Nigeria. The medium, through which this transaction is consummated remains with the capital market through regulatory bodies.

c.           Mergers and Acquisition

Mergers and acquisition have become important survival strategies for most companies in Nigeria. Generally, a merger is a combination of two or more companies legally leases to exist and the survival company continues to exist in it’s original name. However, each of the combining companies will transfer it’s assets and liabilities to the new company, thus, the books of each of the old companies will be closed.

On the other hand, acquisition is the taking over of a business concerned by a more resource based outfit. Mergers and acquisition have been used by most companies to source for funds in the event of cash flow problems. Among other things, merger and acquisition arises when smaller companies with inadequate resources base or technical assistance combine with larger companies with sufficient expertise and technical know-how. This process gives a synergy effect to large economics of scale. Example of this is what is going on now in banking sector.

d.          Loan Stock/ Debenture Stock, Preference Stock and Bond

There are corporate loans stocks that are standard for finance long term capital requirement unsecured loan stock may be issued if the finance profile of the firm is sound. At times, the loan stock may be secure by floating charge, specific charge or even a general credit position of the borrower. Debenture is to company while development loan stock is to government. Another feature is tax shield effect of interest payment. In summary, they are long term capital finance in the capital market.

e.           Loan Stock and Debenture Stock

It is a form of borrowing by a company from a general public acknowledge by the company in form of certificate. The term “debenture” is usually referred to as borrowing without specification collateral such borrowings are based on the general credit position of the borrower. Debenture is to company while development loan stock is to government.

f.            Preference Stock and Bond

Preference stock carried a fixed rate of return and ranking in priority to ordinary shares for earnings and capital realization. They are usually classed along with share capital rather than capital partly because of their performance but because their earnings are by way of dividend which may only be paid if the company makes profits and if its cash can sustain it. A preference share is however similar to loan capital in respect of being a fixed income security in contrast to ordinary shares which have variable income. A bond represents a debt that is owned by the issuer of the bond (the owner of the bond in case where the creditor or some other persons are financing the debt). The bond agreement usually contains a long term repayment of the debt with an obligation.


Stock broking firms can be described as middlemen between the investors and the stock exchange and also between the users of funds and the stock exchange. They make their profit by collecting commission and rates on behalf of the Nigeria securities and exchange commission and stock exchange. Stock broking firms in Nigeria increased from only twenty (20) in 1975 to about 800 in 2005. The increase was elicited by the increase demand for financial intermediaries.

g.The Investors

Investors in Nigeria capital market could be individuals or institutional. Individual investors in the stock market are persons who utilize their excess liquidity to purchase stock. The institutional investors on the other hand, are those institutions (mostly financial) with large comparatively stable liquidity, which they invest in the capital market. Examples of such institutions are brokers boards insurance companies and financial company.



A capital market exist to assist in the transfer of founds from the excess unit (savers) to the necessary borne of two factors, namely: the reliance on money as a medium of exchange in the modern economy and implicitly faith which is given to market price in free enterprise system as a means of allocating societal wealth. Also in competitive  market economics, because price is determined by the forces of demand and supply these forces tend to reflect buyers and seller collective  judgment of the relative utility of the particular commodity vis-à-vis other available commodities. Competitive market price is relied upon to allocate the total societal resources efficiently.

The capital market includes the entire financial system, including the commercial banks and other financial institutions providing shorts, medium and long term loans to finance with consumption and investment. The capital market in it’s narrowest sense, evolves the problem and prospects of equity investment. The capital market performs numerous important functions which have been identified in many texts, write ups and by different writers. The functions are such as:

i.            Financial intermediation from funds surplus to funds deficit institutions

ii.          Offering enterprises new and wider opportunities for obtaining funds

iii.        Acting as a means of exchanging securities at mutually satisfactory prices thereby creating liquidity through it’s pricing mechanism


This material content is developed to serve as a GUIDE for students to conduct academic research

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