Download complete project materials on The Impact Of The Capital Market On The Performance Of Quoted Manufacturing Companies In Nigeria from chapter one to five
CHAPTER ONE
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INTRODUCTION
1.1 Background to the Study
The manufacturing sector consists of establishments that use mechanical or chemical processes to transform material or substances into new products. An establishment is usually at a single physical location and is often called a plant, factory, or mill. It ordinarily uses power-driven machines and equipment for handling materials.
Its products may be finished products that consumers will purchase, such as an automobile or furniture, or they may be semi-finished goods for use by other manufacturers, such as parts for automobile engines or rolls of upholstery fabric. A manufacturing establishment may also assemble parts or perform blending operations.
One goal of production is to consume as few inputs as possible to produce a quality output. It is pertinent to mention that the manufacturing sector of Nigeria has passed through five stages of development. These stages as identified by (Anyanwu, 1998). The first phase is pre-independence era, when manufacturing was limited to primary processing of raw materials for export.
The second phase is post-colonial era of the 1960s characterized by more vigorous import-substitution. The third is the decade of the 1970s, which witnessed the advent of oil and the enormous resources it provided. The fourth phase is the decade of the 1980s that experienced dwindling oil revenue. Also the fifth phase is the pre- SAP era till date which led to near collapse of the Nigerian economy.
A review of the manufacturing sector indicated that the sector has been performing below expectation, leading to decline in industry productivity. In fact, the manufacturing sector in Nigeria contributions just 4% of the Gross Domestic Product (GDP). It is disgusting to note that industries are closing up/have closed up shop.
Capital market is an integral part of the financial system that provides an efficient delivery mechanism for mobilization and allocation, management and distribution of long-term funds. It is a network of financial institutions and infrastructure that interact to mobilize and allocate long-term funds for the economy.
The capital market is one important subset of the financial sector whose role is critical for economic growth and development. All instruments with maturities of more than one year are regarded as capital market instruments (Nzotta, 1999). There are two markets within the Nigeria capital market, which can be broadly classified into Primary Market and Secondary Market.
The primary market is where new issues of securities or financial instrument are sold with the proceeds going to the issuer. While secondary market is where securities previously issued and held by investors are continuously traded between the current holders (seller) and the new investors (buyer). Capital market in any country is one of the major pillars of long-term economic growth and development.
It is in recognition of this critical role of capital market on economic growth that the government of Nigeria has over years sought to develop and strengthen this market. From a modest start in 1977 as an off-shoot of the Lagos Stock Exchange, the Nigerian Stock Exchange (NSE) has grown in width, size and depth.
According to CBN (2010), the value of the total annual market capitalization was N5.0 billion in 1981 and it maintained a steady increase up to 1996 when it was valued at N285.8 billion. After this year, there was a dip in the value for the two succeeding years and the market capitalization picked up. It attained its pick in 2007 when it was valued at N13, 294.6 billion.
From available statistic (CBN, 2010), the number and value of deals have also increased. In 1981, the total number of deals was 10,199 valued at N304.8 million. The total number of deals was 256,523 valued at N28, 153.1 million the year 2000.
The number and value of deals peaked in 2008 when the number of deals was 3,535,631 and valued at N1, 679,143.7 million. By the end of 2010, there were (ten) trading centers and most indicators of capital market development have shown remarkable growth and resilience.
Al-Faki (2006), noted that despite the fact that Nigeria’s capital market had experienced growth as indicated by growth of its performance indicators, the industrial sector (especially the manufacturing sector) growth has not been impressive.
The manufacturing sector output has been low and has witnessed continuous decline in capacity utilization in spite of successive government’s efforts to promote industrial development in Nigeria. Thus, the overriding consideration in this study is to investigate the impact of capital market has had on the performance of quoted manufacturing companies.
The focus will be to find out how well the capital market funds have been used to finance the quoted manufacturing companies. More specifically, how the capital market as impacted on the performance of the quoted manufacturing companies in Nigeria
1.2 Statement of the Problem
The manufacturing sector is the backbone for economic advancement in any nation. This is because it is through the establishment of industries that a nation could produce most of the goods and services its people require.
The manufacturing sector in Nigeria are faced with so many challenges has been listed by the Manufacturer Association of Nigeria (MAN) in business day, Monday 17 September 2012 militating against the growth of the sector, difficult and unfavourable operating environment due mainly to acute infrastructure deficiency in the nation, irregular supply of industrial fuels arising from epileptic operation of local refineries, high cost of alternative power supply to industries resulting in un-competitiveness of locally produced goods, death of skilled middle-level manpower,
high cost of fund and unavailability of long term loan windows to support long-gestation investment, perennial security challenges confronting the country, particularly the increasing trend in terrorism, kidnapping and armed robbery, etc.
Long-term fund which is the bane of the manufacturing sector could be achieved through an active capital market that mobilizes long term funds for the development of small and medium scale industries in Nigeria (Kwode, 2014).
It is clear that the need for long term capital especially in the developing countries like Nigeria makes the capital market indispensable.
The Nigeria capital market is still faced with a lot of challenges, lack of confidence on the part of investors, low level of market capitalization, leadership crisis, lack of accountability and transparency on the part of the regulatory bodies. Consequently, the Nigeria capital market is unable to effectively and efficiently discharge its fundamental role of mobilizing long term fund for the manufacturing sector and the economy in general.
1.3 Research Questions
This study provides answers to following questions:
- What is the impact of market capitalization on the performance of quoted manufacturing companies in Nigeria?
- What is the effect of trading volume on the performance of quoted manufacturing companies in Nigeria?
- Evaluating the impact of all share price index on the performance of quoted manufacturing companies in Nigeria?
1.4 Justification for the Study
This research makes some significant contribution to the existing body of knowledge in the area of capital market and performance of quoted manufacturing companies. The study also is of significant benefit to the investors to know whether the manufacturing companies are performing and how well they are doing in the capital market, so to know
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