IMPACT OF GOVERNMENT BOND ON CAPITALS MARKET GROWTH IN NIGERIA

Code No: 490416

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ABSTRACT

The capital market serves various purposes to a country; principal amongst these is that it facilitates the free-flow of short and long term equity and debt capital to corporations and governments that use it to carry out capital-intensive projects that subsequently enhances the economy. In view of this, it is imperative that a capital market is efficient in its structure and operations so as to attract investors. This is tied to the realization that capital markets thrive on government bonds policies.

This study therefore tends to find out the impact government bonds have on capital markets and their growth in Nigeria. To proceed with the research, the researcher used questionnaires as the instrument for the data collection to get data from a total population sample of 200 CBN, Abuja staff. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, customer care officers and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies. The empirical results obtained from the analysis show that though bonds do not essentially have direct impact on macroeconomic variables, the indirect impact on economic growth in particular cannot be denied.

CHAPTER 1

INTRODUCTION

1.1 Background of the study

The Nigerian capital market is relatively new and has many factors influencing it. The capital market is for sourcing of long term loans, while the floating of government bonds will greatly stimulate the capital market in it’s size and activities. Also, most market started with bonds that are actually floated first. According to SEC, (2020), the bond market is preferred as the ideal mechanism for the exchange of claims among buyers. Government bonds has interest bearings securities in the capital market and also mutual relationship with itself, thus government stock as an instrument gives the capital market room to exist. The presence of government bonds in the Nigerian capital market can be traced to the early twentieth century (20th) and also floating of a bond in 1946 by the then colonial government. The Federal government development bonds which were formally introduced in 1959 was designed to provide long term finance for government projects and later most proceeds are leased on regular basis till 1986 when deregulation of the capital market started. The recent challenges of the capital market in Nigeria was due to economic meltdown from 2009, according to CBN (Central Bank of Nigeria) annual report on its fair share on government bonds. The dismal performance of the banking sector was owing to reforms, administrative charges and others of the CBN and SEC and also counter policies within and outside the market are some factors that have inhibited the capital market as well and the impact of government bonds.

1.2 STATEMENT OF THE PROBLEM

The secondary objective of floating government bond is to source for funds which would be loanable to state governments. Most authors on the Nigeria n capital market literature have recognized the significant impact the capital market has on the economic growth and development of Nigeria, but to some extent the capital market have under gone some challenges which include; Unstable macro-economic environment, poor system of supervision and regulation, limited range of securities, inhibited foreign capital inflow etc. This research work attempts to ascertain if government bond has been able to influence capital market growth and economic development in Nigeria. In Nigeria, much work has not been done to empirically investigate the impact of government bonds on capital market growth in Nigeria. This is the gap in knowledge the researcher is attempting to fill.

1.3 Objectives of the Study

The main objective of the study is to investigate;

1. The impact of the government bonds on capital market growth in Nigeria

2. To ascertain if government bond affect economic growth and development in Nigeria

3. To ascertain the relationship between government bond on capitals market and the economic growth of the study