THE IMPACT OF EQUITY PURCHASE IN THE CAPITAL MARKET (2000-2007)
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- NGN 3000
Background Of 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, (Osaze, 2002).
The capital market in Nigeria deals with long term securities such as equities, federal government development stocks, state and local government bonds, corporate bonds etc. which are used to mobilize funds that would be held by users for a considerable length of time or in perpetuity (Edo, 2003). The capital market is sometimes referred to as the security market. This is because the instrument with which the capital market operates is referred to as securities, which comprises of shares, equities, development stocks etc.
Equity purchase ahs to do with the buying and selling of equities or shares in the capital market. The equity capital market is an important part of the capital market. In this market, companies and financial institutions raise funds and provide equities using the company by purchasing the shares or equities. Company stocks are the prime financial instrument of the equity capital market. This instrument is provided and maintained by the companies or the financial institutions themselves.
The reputation of the stocks in the equity capital market is largely dependent on the companies themselves, because of the fact that it is maintained by different types of financial data provided by the companies. The provided data helps the investor understand the present position and the future of the company in the equity capital market. The equity capital market and the debt capital market together form the capital market. The primary difference between the equity capital market and the debt capital market is the amount of risk and return related to them. The equity capital market is known for its huge returns and it high risks. On the other hand, the debt capital market is far more secure than the equity market but the returns are low. Hence, the role of equity purchase in the capital market cannot be over emphasized.
The Nigerian Stock Exchange (NSE) is the heart of the capital market in Nigeria. It was initially know as Logos Stock Exchange (LSE). Trading on securities take place here. It’s an emerging market which commenced operations in September, 1962 in response to the need for a stock market in Nigeria (Osaze, 2002). Before now, all savings and deposits for purchase of securities went through the banking system. This has since stopped at the advent of the capital market.
Hence, the Nigerian Stock Exchange (NSE) is the hubs of the capital market, pivot ground which every activity of the capital market revolves. This makes it unique in the area of long term mobilization and utilization of funds.
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