THE IMPACT OF GOVERNMENT BONDS ON CAPITAL MARKET GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1     Background to 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, (2000), 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 (20^th) 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 it’s 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 research 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.

1.2.1 Research questions

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

2.                                         The relationship government bonds have with economic growth and development in Nigeria

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.

1.4     Research hypotheses

          The following research hypotheses will be tested in the course of this study: