EFFECT OF GLOBAL MELTDOWN ON NIGERIA CAPITAL MARKET
This study is motivated by a desire to examine the effect of global meltdown on Nigeria Capital Market. In light of the empirical review and other discussions, a number of questions arose as to whether there is relationship between global meltdown and market capitalization, All Share Index and number of deals. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, the empirical findings revealed among other things that there is no relationship between global meltdown and market capitalization; there is a relationship between global meltdown and All Share Index and that There is a significant relationship between global meltdown and number of deals in the Nigeria capital market. Recommendations were however made by the researcher.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of Research Problem
Objective of the Study
Scope of the Study
Significance of the Study
Definition of Terms
CHAPTER TWO: LITERATURE REVIEW
Global Meltdown and the Nigerian Capital Market
Review of Related Literatures and Conceptual Framework
The Nigerian Capital Market and the Global Financial Meltdown
Response By Nigeria
Roles of the Capital Market
Contribution of the Capital Market to Socio-Economic
Development of Nigeria
CHAPTER THREE: RESEARCH METHODOLOGY
Method of Data Collection and Sources
The Population and Sample Size of the Study
Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.2 Presentation and Analysis of Results
Test of Hypotheses
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION
Summary of Findings
BACKGROUND TO THE STUDY
The global meltdown poses the biggest risk since the 1930s to the world economy. “It is obvious to say that the phenomenon called financial meltdown, credit crunch or recession that has its roots in the subprime episode in the United States of America in 2007 has put not a few economic jurisdictions in a tails pin” (Simon, 2009).
From the United States to the United Kingdom; from the Middle East to Asia; and from the Russian federation to Africa, no economy is really totally immune to the state of flux that became the lot of the global economy by the close of the third quarter of 2009. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include capital market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults (Kindleberger and Aliber, 2005, Leaven and Valencia, 2008). Since its onset, economy managers, financial experts and economists, especially those in the worst hit climes, have characterized the phenomenon in various ways – many, every euphemistically as mere threat of a recession. Yet, others describe it in grimmer terms as something akin to the late nineteen twenties – with a potent of even more far – reaching consequences. The argument has even commenced among scholars, public policy analysts and financial experts of various hues as to which, between the industrialized nations and the emerging Nigerian money market, will bear the brunt of the global phenomenon.
According to Okeke (2008), “in the face of the yet unfolding scenarios, we peeped into the genesis of the ‘financial tsunami’, reviewed the characterizations in various economies and captured it all for your update in our global watch under the rubric: global meltdown: recession, depression and other threats”. From this treatise emerges the intriguing fact not agreed, either in the typology or bouquet of solutions to this huge global challenge”. Cognizant of the fact that at the core of the subsisting global credit crunch is the corporate failure of some giant financial institutions, the topic titled: “Warfare and modern strategy: lessons for Nigeria businesses” digs into the origins and application of strategy in warfare – linking it with the business survival of today.
According to Ezirim (2005) “while Nigeria’s future businessmen and women have much to gain by examining the traditional theories and practices of strategy, their success or otherwise will be defined by their flexibility of mind and ability to “think out-side the box’ in crafting strategies for the companies that will define Nigeria’s future”.
The Nigerian capital market institutions enjoyed robust financial growth in recent years that strengthened their balance sheets. Sound economic policies were important factors as was the favourable external support in the form of debt relief and higher credit inflows,” (IMF, 2009). But the food and fuel prices shock of 2007-2009 that preceded the current global financial crises weakened the external position of net importers of food and fuel, caused inflation to accelerate, and dampened growth prospects. The global meltdown greatly compound the policy challenges confronting Nigeria policy makers as it strives to consolidate its economic gains and meet the Millennium Development Goals (MDGs). In the first few months of the financial crises, there was the widely held view that the impact on Nigerian capital market would be minimal because of their low integration into the global economy. Further, Nigeria economy tend to have very small inter-bank markets and several financial institutions have restrictions on new financial product as well as market entry, which should shield them from the direct effects of the global financial crises. Recent developments have, however, shown that the negative contagion effects of the crises are already evident in the Nigeria economy.
STATEMENT OF RESEARCH PROBLEM
The Nigerian capital market has over the years been performing its traditional role. The transmission of the financial crisis from the US and Europe to the rest of the world including Nigeria came through a number of channels. Nigerian capital market had not engaged in the kind of practices seen in the market that populate the financial centers in the major industries. Balance sheets were typically not exposed to the toxic assets that increasingly dominated positions in the money market. Derivatives instrument, futures contract were employed much less frequently and were generally limited to the more traditional instruments employed to hedge against currency and other risks associated with trade. The financial institutions in the capital market either shied away from the more exotic instruments, including such things as credit default swaps and collateralized debt obligations, or were prevented by regulation from holding or trading such instruments. Banking was generally of the more “boring”, old fashioned kind! But, in the end, this did not protect the Nigerian money market.
Against this backdrop, the following research problems are raised:
Is there relationship between global meltdown and market capitalization?
Is there relationship between global meltdown and All Share Index?
Is there relationship between global meltdown and number of deals in the Nigeria capital market?
OBJECTIVE OF THE STUDY
The broad objective of this study is to examine the effect of global meltdown on the Nigeria Capital Market.
The specific objectives are;
To determine the relationship between global meltdown and market capitalization.
To verify the relationship between global meltdown and All Share Index.
To examine the relationship between global meltdown and number of deals in the Nigeria capital market.
The following hypothesis will be tested in the course of this study.
Ho: There is no relationship between global meltdown and market capitalization.
H1: There is a relationship between global meltdown and market capitalization.
Ho: There is no relationship between global meltdown and All Share Index.
H1: There is a relationship between global meltdown and All Share Index.
Ho: There is no significant relationship between global meltdown and number of deals in the Nigeria capital market.
H1: There is a significant relationship between global meltdown and number of deals in the Nigeria capital market.
SCOPE OF THE STUDY
This research work is an empirical study on effect of global meltdown on Nigeria capital market.
The study adopts a time series design and will cover the period between 1985 – 2011.
Geographically, the study will be conducted in Benin City, Edo State.
SIGNIFICANCE OF THE STUDY
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between auditor tenure and auditor independence. The study would also facilitate the examination of the effects of auditor tenure and auditor independence in Nigeria and thus boosting the empirical evidence from Nigeria.
Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies and policy simulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to education analysts, and institutions in examining the effectiveness of auditor tenure and auditor independence.
It will also be useful in stimulating public discourse given the dearth of empirical researchers in this area from emerging economies like Nigeria.
Finally, it would also add to the available literature on the areas of study while also providing a platform for other researchers who may want to further this study.
These are the available avenues through which the researcher used in sourcing and gathering data. The data for this study will be obtained from secondary source. This includes the Central Bank Statistical Bulletin, NSE Fact book, internet, articles and journals
Data collected will be analyzed statistically in this study, hence ordinary least squares regression techniques and other statistical test will be use to analyze the data.
Smallness of sample size: It is interesting to emphasize that the findings of this empirical research are not to be generalize for all industry, since our limited to a number of companies.
The inability to obtain a completely random sample.
Imprecise measurement of variables.
Inappropriate test statistic.
DEFINITION OF TERMS
Capital market: A market in which individuals and institutions trade financial securities.
Global Meltdown: The 2007 collapse of the U.S. housing market and the worldwide economic damage that followed in 2008 and 2009 brought the term "economic meltdown" into the vocabularies of many people.
Ezirim. (2005). Finance Dynamics: Principles Techniques, and Applications. Port Harcourt: Markowitz.
IMF. (2009). Global Financial Stability Report (October)
Kindleberge. C.P., and Aliber, R. (2005). Manias, Panics, and Crashes: A History of Financial Crisis. United States, Willey and Sons, Inc.
Leaven, L., and Valencia, F. (2008). Systemic banking crises: a new database, International Monetary Fund Working Paper 08/224.
Okeke, M. (2008). Global Financial Crises: Recession, Depression and other threat, Zenith Economic Quarterly, Lagos Planet Press Ltd.
Simon, M. (2009). Paper on Global Financial Crisis and Developing Countries, Overseas Development Institute, London.
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