BACKGROUND TO THE STUDY
The role of the capital market in the revolutionisation of
the economy cannot be over emphasize especially when one considers the high
level of financial intermediation it conducts as regards its role in channeling
funds in large amount from surplus areas to deficit areas.
The capital market refers to the market trading in medium
and long term financial instrument with maturities which exceeds one year. In
other words, it is the market that enables government and companies to raise
long term capital with ease by issuing securities. According to Gaumnitz and
Duagau, (2002), the capital market is a “complex of institutions and mechanisms
through which intermediate funds and long term funds are pooled and made
available to businesses, government and individuals and instrument already
outstanding are transferred”.
The capital market provides the wherewithal for the growth
of the economy and development programme and serves as an indicator of the
economy’s liquidity and general performance (Osaze, 2002).
Anyanwu (1999) defined the capital market as a market for
the mobilization and utilization of long term funds for development. It can
also be defined as that market were medium and long term loan stock are either
bought or sold for investment and infrastructural development projects by
business and government. The capital market is sometimes referred to as the
equity market. This is because the instrument with which the capital market
operates is referred to as the equities, which comprises of shares debentures
and development stocks etc.
Equity on the other hand is an instrument or documentation
evidencing and investment made by a party and constituting a future claim
against the former by the latter payable at maturity. Alice and Anao (2000)
defined equity or security as documentary evidence of ownership or entitlement
to claim upon the assets of the issuing organization which may be a business,
firm, government or a quasi government market instruments to be ranked as
equities. These equity instruments include commercial papers, short term
treasury bills and treasury certificates (Ugorji, 2002).
Capital market includes a whole complete set of institutions
and procedures for providing intermediate and long term funds to fund users
(Ugorji, 2002). In other words, capital market plays a vital role in capital
formation which is necessary for the development of an economy. Hence, capital
market is a prime motor that drives an economy on its path to growth and
development because it is responsible for long term growth capital formation,