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| Pages: 75
GLOBALIZATION AND STOCK MARKET GROWTH IN NIGERIA
Abstract
This study examines the impact of globalization and Nigeria’s Stock Market Growth in Nigeria. It also determines whether the introduction of the automated trading system has any significant effect on the stock market operation and it also aim to investigate whether globalization of the stock market in Nigeria has attracted foreign direct investment. The population of study consists of one hundred questionnaires administered to the employees in the administration department of the Nigerian Stock Exchange. The method of analysis used in the course of this study was the chi-square method, which was used to test the hypotheses. Based on the tested hypotheses, it was found that globalization has a significant impact on the stock market operation in Nigeria. The study concludes that the Nigeria Stock Market has a brighter prospect given to the recent policy direction especially the abrogation of laws that hitherto hamper its effective and efficient functioning, the internationalization, the improvement in the infrastructural facilities in the market in line with what is obtainable in the developed market as well as the present democratic dispensation will work individually and jointly to ginger the prospect of the stock market. Finally, it was recommended thatgovernment should play a more positive role in order to foster Stock
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Globalization refers simply to the universalization of concepts, movements, technology, market operations in the context of a compressed world. A process by which the world becomes a single place (Schotte, 2006; Monge, 2008). Furthermore, it is a process characterized by increase in communication velocity, technological sophistication, economic integration and ideological universalism.
Globalization is a fact of life because all are affected by it in terms of its benefits or limitations, positively or negatively. It is one of the tendons of our time eliciting fundamental changes in the policy structure, management and growth in directions of organizations and nations world-wide. In its broader terms, globalization refers to the fact that frontier have ceased to be the barrier of economic growth.
Globalization is driven by advancement in sophisticated telecommunication and technology, with the consequent reduction in distance between economic agents making it possible for domestic markets to emerge into a global system. In this context, globalization has created variety of financial and investment opportunities, which many developing countries like Nigeria have taken advantage of to secure susbstantial foreign (bank) debts during the early 70s. The place of integration of world economy has quickened considerably as a result of significant shift in the global economy. With the collapse of communism, the global integration, particularly in trade and capital flow has gained momentum. The world ideological partition which earlier prevented integration between the major blocks, has given way to more accommodating environment and opening up societies that were hitherto closed (Monge, 2008).
Globalization in its own modern form properly set root in Nigeria with British colonization and empire building. Since the introduction of Structural Adjustment Program (SAP) in Nigeria, the country’s stock market has grown very significantly (Alile, 1996; Soyode, 2010). This is as a result of deregulation of the financial sector and the privatization exercise, which exposed investors and companies to the significance of the stock market. Equity financing became one of the cheapest and flexible sources of finance from the capital market and remain a critical element in the sustainable development of the economy (Okereke-Onyiuke, 2000).
The recent growth of stock market, through increase in cross border capital movements has been attributed to the removal of statutory restrictions on the capital account transactions and economic liberation. IMF (1998) attributed another growth of stock market globally to macro-economic stabilization and policy reforms in the developing countries; privatization, liberalization of trade and growth of stock. Similarly, the globalization of stock markets can also be attributed to the spread of best practices in corporate governance, accounting rules, and legal traditions (Feldestein, 2010).
According to Temitope, Oshikoya and Ogbu (2000), the stock market is viewed as a medium to encourage savings, help channel savings into productive investments, and improve the efficiency and productivity of investments. The emphasis on the growth of stock markets for domestic resource mobilization has also been strengthened by the need to attract foreign capital in non-debt creating forms. A consensus has emerged in recent times, which emphasized the critical role of stock market in the process of development. It is a fat that globalization leads to transmission of liquid it through savings, investments and productivity to the growth of stock market (Akinola, 2003). Several research works has demonstrated, the need for stock market to efficiently transfer funds for economic development (Magnus & Wydick, 2002). Specifically, the role of stock market in economic development cannot be overemphasized; the liquidity of stock (capital investment) has been noted. Many profitable investments require a long-term commitment of capital but investors might not want to tie up their savings for such long periods.
Until recently, Nigerian stock markets have not performed impressively when compared to those in other regions of the world. However, Nigerian stock exchange has experienced significant gains in the entry of the new millennium: market capitalization and new listing no doubt have increased. These changes have taken place within the context of globalization and internationalization policies that reflect the effort of the government to use stock markets as a means of privatization and engine growth of the economy. Against this background, this study is designed to under-study globalization and stock market growth in Nigeria.
1.2 Statement of Problem
The role of the stock market is to mobilize saving and channel them to productive investments. But more specifically, the stock market has the unique functions of intermediation of the long end of the market. It provides long-term debt financing in long-term assets. Also by providing access to risk capital and long-term financing, the stock market helps to strengthen the financial structure of corporations and improve the general solvency of the financial system.
Since a well developed stock market can make available a wide range of financial instruments, it can thus improve investment of higher return for a given degree of risk. Thus, through credit allocation and investment function, a well developed financial market can help to stimulate economic growth.
However, in the last few years, the Nigeria economy and its financial system has been made so strong that it is impervious to the negative externalities of the global financial crisis. The recapitalization of banks, the inflation bubble in the stock market were quick reference to the pillars that ensured the strength of the economy was regarded as acting alone without exchanging anything with anybody. However, as the recession in the Nigeria Stock Market became even more worrisome, the formal admittance of the fact that indeed Nigeria is not a closed economy or isolated economy as many people have been erroneously led to believe. Consequently, the central bank faced the problem in equity market to the withdrawal of funds by foreign institutions and private investors. This means that indeed Nigeria is equally exposed. The present economic recession faced by Nigeria and Nigerians have greatly affected the stock market growth in the economy. This constituted a major problem for this study.
1.3 Research Questions
To authenticate the viability of the proposed hypotheses of the study, the under stated research questions were adopted.
i. Does globalization of the central market (Stock Exchange Market) affect the operation of the market operation?
ii. Has the introduction of the Automated Trading System affected the operation of the market in Nigeria?
iii. Does the globalization of the exchange market affect foreign direct investment?
1.4 Objectives of the Study
The broad objective of the study is to examine the impact of globalization on the Nigerian stock exchange market operation. The specific objectives are;
i. To investigate the impact of globalization on the Nigeria stock market operation
ii. To determine whether the introduction of the automated trading system has any significant effect on the stock market operation.
iii. To investigate whether globalization of the stock market in Nigeria has attracted foreign direct investment.
1.5 Statement of Hypotheses
For an in-depth investigation and in order to actualize the objectives of the study, the following hypotheses stated in null and alternate formats were adopted,
Hypothesis 1
HO: Globalization has no significant effect on the Nigeria stock market operation.
HI: Globalization has a significant effect on the Nigeria stock market operation.
Hypothesis 2
HO: The automated trading system has no positive impact on the globalization of the Nigeria stock exchange operation.
HI: The automated trading system has a positive impact on the globalization of the Nigeria stock exchange operation.
Hypothesis 3
HO: Globalization of the stock market has no significant effect on foreign direct investment in Nigeria.
HI: Globalization of the stock market has a significant effect on foreign direct investment in Nigeria.
1.6 Significance of the Study
After the completion of this research work, the below parties would find it very useful.
(a) Policy Makers: The importance of knowing the major globalization indicators that impact on stock market growth in Nigeria cannot be overemphasized. This study is very important as it would provide suggestions of how policy markers can manipulate trade liberalization, foreign private investment, exchange rate disparity, foreign indebtedness, and inflation and interest rate to the benefit of Nigeria stock market.
(b) Investors: This study will also be useful to investors’ especially institutional investors that consider global forces when investing. It will assist and provide a clear explanation to investors on how globalization forces affect their investment in stock market.
(c) Researchers and Readers: The study will provide information to researchers who would want to write articles and working papers on the issue of stock market growth and globalization. Readers who want to broaden their knowledge on the subject matter would find it a dependable source of relevant information.
1.7 Scope of the Study
The scope of this study is the Nigeria stock exchange market and how its growth was affected by globalization. This study encompasses the period before and during the advent of the global financial crisis. Moreover, before the period of global financial crisis, the Central Bank Governor made several pronouncements as how the global problem would not affect the Nigeria economy due to adequate capitalization of the economy. The recession witnessed in the economy, especially in the performance of Nigeria stock exchange call for investigation.
1.8 Limitations of the Study
In the course of this study, the researcher encountered problems which in one way or the other challenged the easy flow of this work. These include;
1. Biasness on the respondents.
2. Lack of available information to be obtained from the sample firms.
3. Some selected firms were used as case study hence if the result is generalized, it may not reflect the true position of other firms due to environmental difference.
1.9 Definition of Terms
In this study, the researcher made use of some technical but related forms. For ease of understanding of these terms, the following functional definitions were given:
i. Globalization: Globalization is a process of integrating economic decision-making, such as consumption, investment and savings across the world.
ii. Liquidity: Liquidity is used to refer to the ability of investors to easily buy and sell securities easily.
iii. Turnover Ratio: Turnover ratio refers to an index of comparison for market liquidity rating and level of transaction cost.
iv. Profitability: The state or condition of yielding profit or gain. It is often measured by price to earnings ratio.
v. Investment: The purchase of a financial product or other items of value with an expectation of favourable future returns.
Abstract
This study examines the impact of globalization and Nigeria’s Stock Market Growth in Nigeria. It also determines whether the introduction of the automated trading system has any significant effect on the stock market operation and it also aim to investigate whether globalization of the stock market in Nigeria has attracted foreign direct investment. The population of study consists of one hundred questionnaires administered to the employees in the administration department of the Nigerian Stock Exchange. The method of analysis used in the course of this study was the chi-square method, which was used to test the hypotheses. Based on the tested hypotheses, it was found that globalization has a significant impact on the stock market operation in Nigeria. The study concludes that the Nigeria Stock Market has a brighter prospect given to the recent policy direction especially the abrogation of laws that hitherto hamper its effective and efficient functioning, the internationalization, the improvement in the infrastructural facilities in the market in line with what is obtainable in the developed market as well as the present democratic dispensation will work individually and jointly to ginger the prospect of the stock market. Finally, it was recommended thatgovernment should play a more positive role in order to foster Stock
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Globalization refers simply to the universalization of concepts, movements, technology, market operations in the context of a compressed world. A process by which the world becomes a single place (Schotte, 2006; Monge, 2008). Furthermore, it is a process characterized by increase in communication velocity, technological sophistication, economic integration and ideological universalism.
Globalization is a fact of life because all are affected by it in terms of its benefits or limitations, positively or negatively. It is one of the tendons of our time eliciting fundamental changes in the policy structure, management and growth in directions of organizations and nations world-wide. In its broader terms, globalization refers to the fact that frontier have ceased to be the barrier of economic growth.
Globalization is driven by advancement in sophisticated telecommunication and technology, with the consequent reduction in distance between economic agents making it possible for domestic markets to emerge into a global system. In this context, globalization has created variety of financial and investment opportunities, which many developing countries like Nigeria have taken advantage of to secure susbstantial foreign (bank) debts during the early 70s. The place of integration of world economy has quickened considerably as a result of significant shift in the global economy. With the collapse of communism, the global integration, particularly in trade and capital flow has gained momentum. The world ideological partition which earlier prevented integration between the major blocks, has given way to more accommodating environment and opening up societies that were hitherto closed (Monge, 2008).
Globalization in its own modern form properly set root in Nigeria with British colonization and empire building. Since the introduction of Structural Adjustment Program (SAP) in Nigeria, the country’s stock market has grown very significantly (Alile, 1996; Soyode, 2010). This is as a result of deregulation of the financial sector and the privatization exercise, which exposed investors and companies to the significance of the stock market. Equity financing became one of the cheapest and flexible sources of finance from the capital market and remain a critical element in the sustainable development of the economy (Okereke-Onyiuke, 2000).
The recent growth of stock market, through increase in cross border capital movements has been attributed to the removal of statutory restrictions on the capital account transactions and economic liberation. IMF (1998) attributed another growth of stock market globally to macro-economic stabilization and policy reforms in the developing countries; privatization, liberalization of trade and growth of stock. Similarly, the globalization of stock markets can also be attributed to the spread of best practices in corporate governance, accounting rules, and legal traditions (Feldestein, 2010).
According to Temitope, Oshikoya and Ogbu (2000), the stock market is viewed as a medium to encourage savings, help channel savings into productive investments, and improve the efficiency and productivity of investments. The emphasis on the growth of stock markets for domestic resource mobilization has also been strengthened by the need to attract foreign capital in non-debt creating forms. A consensus has emerged in recent times, which emphasized the critical role of stock market in the process of development. It is a fat that globalization leads to transmission of liquid it through savings, investments and productivity to the growth of stock market (Akinola, 2003). Several research works has demonstrated, the need for stock market to efficiently transfer funds for economic development (Magnus & Wydick, 2002). Specifically, the role of stock market in economic development cannot be overemphasized; the liquidity of stock (capital investment) has been noted. Many profitable investments require a long-term commitment of capital but investors might not want to tie up their savings for such long periods.
Until recently, Nigerian stock markets have not performed impressively when compared to those in other regions of the world. However, Nigerian stock exchange has experienced significant gains in the entry of the new millennium: market capitalization and new listing no doubt have increased. These changes have taken place within the context of globalization and internationalization policies that reflect the effort of the government to use stock markets as a means of privatization and engine growth of the economy. Against this background, this study is designed to under-study globalization and stock market growth in Nigeria.
1.2 Statement of Problem
The role of the stock market is to mobilize saving and channel them to productive investments. But more specifically, the stock market has the unique functions of intermediation of the long end of the market. It provides long-term debt financing in long-term assets. Also by providing access to risk capital and long-term financing, the stock market helps to strengthen the financial structure of corporations and improve the general solvency of the financial system.
Since a well developed stock market can make available a wide range of financial instruments, it can thus improve investment of higher return for a given degree of risk. Thus, through credit allocation and investment function, a well developed financial market can help to stimulate economic growth.
However, in the last few years, the Nigeria economy and its financial system has been made so strong that it is impervious to the negative externalities of the global financial crisis. The recapitalization of banks, the inflation bubble in the stock market were quick reference to the pillars that ensured the strength of the economy was regarded as acting alone without exchanging anything with anybody. However, as the recession in the Nigeria Stock Market became even more worrisome, the formal admittance of the fact that indeed Nigeria is not a closed economy or isolated economy as many people have been erroneously led to believe. Consequently, the central bank faced the problem in equity market to the withdrawal of funds by foreign institutions and private investors. This means that indeed Nigeria is equally exposed. The present economic recession faced by Nigeria and Nigerians have greatly affected the stock market growth in the economy. This constituted a major problem for this study.
1.3 Research Questions
To authenticate the viability of the proposed hypotheses of the study, the under stated research questions were adopted.
i. Does globalization of the central market (Stock Exchange Market) affect the operation of the market operation?
ii. Has the introduction of the Automated Trading System affected the operation of the market in Nigeria?
iii. Does the globalization of the exchange market affect foreign direct investment?
1.4 Objectives of the Study
The broad objective of the study is to examine the impact of globalization on the Nigerian stock exchange market operation. The specific objectives are;
i. To investigate the impact of globalization on the Nigeria stock market operation
ii. To determine whether the introduction of the automated trading system has any significant effect on the stock market operation.
iii. To investigate whether globalization of the stock market in Nigeria has attracted foreign direct investment.
1.5 Statement of Hypotheses
For an in-depth investigation and in order to actualize the objectives of the study, the following hypotheses stated in null and alternate formats were adopted,
Hypothesis 1
HO: Globalization has no significant effect on the Nigeria stock market operation.
HI: Globalization has a significant effect on the Nigeria stock market operation.
Hypothesis 2
HO: The automated trading system has no positive impact on the globalization of the Nigeria stock exchange operation.
HI: The automated trading system has a positive impact on the globalization of the Nigeria stock exchange operation.
Hypothesis 3
HO: Globalization of the stock market has no significant effect on foreign direct investment in Nigeria.
HI: Globalization of the stock market has a significant effect on foreign direct investment in Nigeria.
1.6 Significance of the Study
After the completion of this research work, the below parties would find it very useful.
(a) Policy Makers: The importance of knowing the major globalization indicators that impact on stock market growth in Nigeria cannot be overemphasized. This study is very important as it would provide suggestions of how policy markers can manipulate trade liberalization, foreign private investment, exchange rate disparity, foreign indebtedness, and inflation and interest rate to the benefit of Nigeria stock market.
(b) Investors: This study will also be useful to investors’ especially institutional investors that consider global forces when investing. It will assist and provide a clear explanation to investors on how globalization forces affect their investment in stock market.
(c) Researchers and Readers: The study will provide information to researchers who would want to write articles and working papers on the issue of stock market growth and globalization. Readers who want to broaden their knowledge on the subject matter would find it a dependable source of relevant information.
1.7 Scope of the Study
The scope of this study is the Nigeria stock exchange market and how its growth was affected by globalization. This study encompasses the period before and during the advent of the global financial crisis. Moreover, before the period of global financial crisis, the Central Bank Governor made several pronouncements as how the global problem would not affect the Nigeria economy due to adequate capitalization of the economy. The recession witnessed in the economy, especially in the performance of Nigeria stock exchange call for investigation.
1.8 Limitations of the Study
In the course of this study, the researcher encountered problems which in one way or the other challenged the easy flow of this work. These include;
1. Biasness on the respondents.
2. Lack of available information to be obtained from the sample firms.
3. Some selected firms were used as case study hence if the result is generalized, it may not reflect the true position of other firms due to environmental difference.
1.9 Definition of Terms
In this study, the researcher made use of some technical but related forms. For ease of understanding of these terms, the following functional definitions were given:
i. Globalization: Globalization is a process of integrating economic decision-making, such as consumption, investment and savings across the world.
ii. Liquidity: Liquidity is used to refer to the ability of investors to easily buy and sell securities easily.
iii. Turnover Ratio: Turnover ratio refers to an index of comparison for market liquidity rating and level of transaction cost.
iv. Profitability: The state or condition of yielding profit or gain. It is often measured by price to earnings ratio.
v. Investment: The purchase of a financial product or other items of value with an expectation of favourable future returns.
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