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 (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 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:
(i)
Government bonds do not have effect on
capital market growth in Nigeria.
(ii)
Government bonds does not
significantly affect economic growth and development in Nigeria
1.5 Significance of study
i.
Government:
The study will enable the government to understand when to float bonds and how
to set up policies to achieve a stable macro-economic environment animal at
fostering the growth of the capital market.
ii.
Investors:
The study will enable investors to seek for better return on their investment
in fixed income securities.
iii.
Students
and fellow researchers: This study will enable students
to understand the meaning of capital market growth and government bond.
Researchers can build on this research work for further study by expanding the
scope of for their academic purpose.
1.6 Scope of the study
This study attempts to investigate the
impact of government bonds on capital market growth in Nigeria. Data will be
extracted from the entire stock market list in the Nigerian stock exchange
annual reports and statement of accounts, Central Bank Statistical bulletin,
stock exchange fact book over a period of time specifically 1990 to 2011 which
is the scope of the study. This document will form the source of data
collection.
1.7 Limitation of the study
The major constraint is the heavy
reliance on secondary data. It was difficult to obtain data directly from the
capital market operators that capture government bond indicators. However, the
present study relies on data extracted from Securities and Exchange Commission
(SEC) report, Central Bank of Nigeria statistical Bulletin, Nigerian stock
Exchange (NSE) annual reports and statements of accounts. Therefore a
significant reduction in the problem of inadequacy and reliability in data of
the present study.