CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Almost all the economist laid emphasis on capital formation as the major determinant of economic growth. The meaning of capital formation is that society does not apply the whole of it’s current productive activity to the needs and immediate desire of consumption, but directs some part of it to the creation of capital goods, tools and instruments, machines and transport facilities, plants and equipments all the various forms of real capital that can so greatly increase the efficiency of productive effort. The essence of capital formation is to divert a portion of society’s currently available resources for the purpose of increasing the stock of capital goods so as to make possible for an expansion of consumable output in the future.
The research focuses it’s attention on Nigerian Stock Exchange which as the most visible mirror of the formal capital market in the country. The Nigerian Stock Exchange is one of the institutions on the capital market, which specializes in all forms of marketing trading securities. It is a network of individual institution and instrument. The market plays a central and dispensable role for which is has been variously described as the “hall mark” or the heart of the capital market.
The rapid economic development of any economy depends, among other things, on ready access of adequate financial resources (Alile and Anao, 1990). The desire to develop financial market in an economy is intimately connected with the objective of accelerating industrial and agricultural development. Among this financial market is the stock exchange, which deals with the mobilization of bank medium and long term capital funds (Sule and Momoh, 2009). The mechanism of stock exchange came into existence to enable investment, which were inherently illiquid to become liquid through reconversion into cast at the decision of the investor without inconveniency the company (Olowe, 1997). Today, words like globalization have become familiar in economic and finance parlance and past growing intern dependence of economics and financial markets cannot be ignored.
The development of the capital market in Nigeria dates back to 1946, when the first government securities was floated; the institutional facilities for the operation was however absent and did not commence until fifteen years later, when the Nigerian Stock Exchange (now the Nigerian Stock Exchange) was established in 1961.
Consequently, in 1953, the Federal Government set up a committee under Professor R.H. Barback to advise on ways and means to fostering a shares market in Nigeria. The report of the committee was published in 1959 and it recommended among other things:
(1) The creation of facilities for dealing in shares
(2) The establishment of rules regulating transfer and;
(3) Measures to encourage saving and issue of government and other organizations.
As follow up to this report, the then Lagos Stock Exchange now Nigerian Stock Exchange was incorporated on 15th September, 1960 through the collective encouragement of the business community, the Nigerian Industrial Development Bank Limited (NIDB) and the Central Bank of Nigeria.
Conclusively, the availability of a secondary market endangers capital formation and socio-economic development. The allocative function as critical in determining the overall growth of the economy ie, the financial sector. Therefore, the role of the Nigerian Stock Exchange in the economy is an engine for capital formation saddles with the private sector in general to achieve economic development program.