An appraisal of the role of capital market in the privatization of public enterprises

Thesis Overview

<p> </p><p><strong>1.1 &nbsp; &nbsp; INTRODUCTION</strong></p><p>It is a known fact that the investment that promotes economic growth and development requires long term funding, far longer than the duration for which most investors are willing to commit their funds.</p><p>Capital market is a collection of financial institutions set- up for the granting of medium and long term loans. It is a Market for government securities, for corporate bonds, for the mobilization and utilization of long term funds for development that is the long termed of the financial system. In this market, Leaders (Investors) provide Long term funds in exchange for long term financial assets offered by borrowers. This market embraces both the new issues (primary) market and secondary market. Such securities might be raised in an organized market such as the Stock Exchange. In this sense, it involves consortium under writing, syndicated loans and project financing.</p><p>Thus, it is a mechanism whereby Economic unit desirous to invest their surplus funds, interact directly or through financial intermediaries with those who which to procure funds for their Businesses. In Nigerian context, participant includes Nigerian Stock Exchange, Discount Houses, Development banks, Investment banks, Building Societies, Stock Broking Firms, Insurance and Pension organizations, the government, individuals and the Nigerian Stock Exchange Commission (NSEC)</p><p>Though the role of the Capital market in the Privatization of public enterprises has for long been of interest to present time researcher as well as Economics planners .This is so, because, the Capital being as it is plays a vital role in the successful completion of the Privatization programme. Thus, the broad role of the Nigerian Capital market in Privatization will be to serve as platform for the participation of the extremely large numbers of small investors throughout the Country in the distribution of shares of enterprises that will be designated for privatization.</p><p>Among such benefit highlighted by the Bureau of Public Enterprises (2000) are that Privatization will bring about, a reduction in Government wasteful spending in the area of running the enterprises, also that strategic Investors/Foreigners will bring their money and new technology into Nigeria to run the Company eventually leading to growth and development of the Nigerian Economy .</p><p>The Nigeria Stock Exchange has its branches in Lagos. (1960), Kaduna (1978), Port – Harcourt (1980), Kano (1989), Onitsha Feb. 1990- August 1990; Abuja Area Office, 1990; and Yola (2002); The Lagos Stock Exchange (1960) was transformed on 2nd December 1977 into, the Nigerian Stock Exchange.</p><p>Finally, it is therefore the role of the Nigerian Stock Exchange to see to the marketing of these 20% equity shares to the Nigerian Public and to ensure that they are evenly spread among classes and regions of Nigeria acquiring the 20% shares under a conceived communication policies.</p><p><strong>1.2 &nbsp; STATEMENT OF THE RESEARCH PROBLEMS</strong></p><p>The major concern of this research work is to critically appraise the role of capital market (through the Nigerian Stock Exchange, Lagos) in the Privatization of public enterprises. The research work will also examine and provide answers m respect of the following questions;</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;which activities of the Nigerian Stock Exchange is in relation to the Privatization of Public Enterprises?</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; To what extent has the Nigerian Stock Exchange contribute to Economic development and growth?</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;To what extent has the government development stock rate influenced the rate of stock market capitalization.</p><p><strong>1.3 &nbsp; &nbsp; AIM AND OBJECTIVES OF THE STUDY</strong></p><p>The objectives of the study will be summarized below;</p><p>i) &nbsp; &nbsp; &nbsp; Critically appraise the role of Nigerian Stock Exchange in relation to the privatization of public enterprises.</p><p>ii) &nbsp; &nbsp; &nbsp;Determine the extent to which the Nigeria Stock Exchange contributes to Economic development and growth.</p><p>iii) &nbsp; &nbsp; Find out the extent to which the development of capitalization will be related to the operation of the Nigerian Stock Exchange.</p><p><strong>1.4 &nbsp; STATEMENT OF HYPOTHESIS</strong></p><p>Ø What role does Nigerian Stock Exchange play in the privatization of public enterprises?</p><p>Ø Does Nigeria Stock Exchange contribute to Economic growth and development?</p><p>Ø What is the relationship between development of capitalization and the operation of the Nigerian Stock Exchange?</p><p><strong>1.5 &nbsp; &nbsp;STATEMENT OF RESEARCH HYPOTHESIS</strong></p><p>In the course of this study, three main hypotheses are formulated <strong>•</strong></p><p><strong>Hypothesis 1:</strong></p><p>Ho: That the activities of Nigerian Stock Exchange have no any significant relationship to the privatization of public enterprises.</p><p>Ha: That the activities of Nigerian Stock Exchange have significant relationship to the privatization of public enterprises .</p><p><strong>Hypothesis 2:</strong></p><p>Ho: That the Nigerian Stock Exchange market does not have any significant effect on Economic development and growth.</p><p>Ha: That the Nigerian Stock Exchange market has significant effect in Economic development and growth .</p><p><strong>Hypothesis 3:</strong></p><p>Ho: That the development of manufacturing sector does not relate</p><p>to the operation of the Nigerian Stock Exchange.</p><p>Ha: That the development of manufacturing sector relate to the operation of the Nigerian Stock Exchange.</p><p><strong>1.6 &nbsp; &nbsp; RESEARCH METHODOLOGY</strong></p><p><strong>1.6.1</strong>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;The Econometric Analysis will be used to test for the relationship between dependent and independent variables. Data collected from secondary sources and also compiled from publications such as CBN and Statistical bulletin.</p><p><strong>1.6.2</strong>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;Regression Analysis is utilized to measure the impact of Market Capitalization, Share index, Amount Generated from Privatization of Public Enterprises, Eligible Development Stock on Gross Domestic Product in the Nigerian economy from <strong>1981 – 2008</strong>. GDP is dependent variable while Market Capitalization, Share index, Amount Generated from Privatization of Public Enterprises, Eligible Development Stock are independent variable.</p><p><strong>1.6.3 &nbsp;MODEL SPECIFICATION</strong></p><p>Gross Domestic Product is the dependent variable, while the independentvariable is Market Capitalization, Share index, Amount Generated from Privatization of Public Enterprises, Eligible Development Stock.</p><p>The model expressed as an implicit function will be:</p><p><strong>Model 1</strong></p><p>From Privatization of Public Enterprises (privpub)</p><p>That is share index = f (pripub)</p><p>Shareindex = (β0 + (β1 pripub + µ</p><p>The model expressed in estimation form will be:</p><p>BDP = (βo + β1X1 + µ)</p><p>Where</p><p>βo</p><p>=</p><p>Autonomous (Intercept)</p><p>β1</p><p>=</p><p>Coefficient of direct investment (X1)</p><p>µ</p><p>=</p><p>Stochastic or error term</p><p><strong>Model 2</strong></p><p>Amount Generated From Privatization of Public Enterprises</p><p>(privpub) and Gross Domestic Product</p><p>That is gdp = f (privpub)</p><p>gdp = βo + β1 pripub + µ</p><p>βo</p><p>=</p><p>Autonomous (Intercept)</p><p>β1</p><p>=</p><p>Coefficient of direct investment (X1)</p><p>µ</p><p>=</p><p>Stochastic or error term</p><p><strong>Model 3</strong></p><p><strong>Market Capitalization (mktcap) and</strong>&nbsp;Gross Domestic Product</p><p>That is gdp = f (mktcap)</p><p>gdp = βo + β1 mktcap + µ</p><p>Where</p><p>βo &nbsp; &nbsp; &nbsp;= &nbsp; &nbsp; &nbsp; Autonomous (Intercept)</p><p>β1 &nbsp; &nbsp; &nbsp;= &nbsp; &nbsp; &nbsp; Coefficient of direct investment (X1)</p><p>µ &nbsp; &nbsp; &nbsp; = &nbsp; &nbsp; &nbsp; Stochastic or error term</p><p>The research methodology is to use secondary data and this will lead to regression analysis to test for the relationship between dependent and independent variables.</p><p><strong>1.7 &nbsp; &nbsp; SIGNIFICANCE OF THE STUDY</strong></p><p>This thesis will be useful to Economics and various classes of financial users in various Disciplines. Also this research work will be of great importance to the Nigerian Public, policy maker and to the less developed Countries (LDC) above all, the study as a reference to prospective students who might want to study issues about capital market in Nigeria and will also be useful for developed Countries and international organization if it is look into carefully.</p><p><strong>1.8 &nbsp; &nbsp; SCOPE AND LIMITATION OF THE STUDY</strong></p><p>There are various institutions under the capital market, but this study limits itself on the Nigerian Stock Exchange in Lagos. This is so because the Nigerian Stock Exchange Lagos provides, the researcher with the necessary information and materials needed to carry out the study and also because of time availability and financial constraints.</p><p>However, the limitation will not affect the validity of the generalizations and conclusions this research work.</p><p><strong>1.9 &nbsp; &nbsp; DEFINITION OF TERMS AND CONCEPT</strong></p><p>In the process of the research work some word will be used and acronyms which might be new to those that might benefit from this work in line with the researcher have defined these words and acronyms as used in one paragraph to the other.</p><p><strong>Capital:</strong>&nbsp; &nbsp; &nbsp; &nbsp;Any used for long-term investment or money used to start a business</p><p><strong>Capital market:</strong>&nbsp; &nbsp;Is collection of financial institutions set-up for the granting of medium and long-term Loans.</p><p><strong>Equity or equities</strong>: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; According to Oxford dictionary of Economics, equity is the ordinary shares or common stock of companies. The owners of these shares are</p> <br><p></p>