The capital market is a financial market that provides facilities for mobilizing and dealings in long-term funds for economic growth and development. Wilkinson (2007) defines capital market as “any place or system where the requirements of business enterprises and public authorities or governments for medium and long-term capital funds can be met”. It is the market in which corporate equity and long term debt securities that is shares and bond (those maturing in more than one year) are issued and traded.


Ajie (2002) is of the view, “that pivotal role of the capital market in any economy could have been dispensed with, if a firm or even an individual for that matter could operate in a financial vacuum”. As a matter of fact, it is because firms for example, operate in close contacts with various financial intermediaries and markets that they are afforded not only the mechanism through which their idle funds can be invested but also one that is capable of satisfying their needs for additional funds.


As observed by Okereke-Onyiuke (2000), raising funds from the Capital Market makes possible among others, the construction of factories, offices, buildings, highways, bridges and the acquisition of machineries. This opportunity which the Capital Market offers facilitates capital mobilization and allocation among several competing activities.


In theory, Capital Markets are intended to provide investors and borrowers with a wide range of trading and investment vehicles and to better mobilize and allocate a country’s financial resources and support economic growth. This market brings together all the providers and users of capital. Buying stock allows investors to gain an equity interest in the company and become part owner. When investors buy bonds, they essentially loan money to the company or government that issued the bond and become creditors of that issuer. The market also provides them with new and more varied saving vehicles as alternative to bank deposit. For borrowers capital markets provide access to more funds for expansion which can help in economic growth. Levine and Zervos (1998) are of the opinion that well functioning capital market, along with well designed institution and regulatory system, foster economic growth through private initiatives.


There is empirical evidence strongly suggesting that well functioning capital market promote long-run economic growth. In particular, Levine and Zervos (1998) find that indicators of capital market performance such as market capitalization, turnover, growth in the number of listed securities, and so on are correlated with economic growth and its sources – total factor productivity growth and capital formation.


In the recent past, capital market performance has received increased attention among governments and development finance institutions, with emerging market accounting for a growing share of the worldwide boom in the capital markets. Countries at different levels of development are promoting the performance of their capital markets with the expectation that these efforts will pay off in terms of faster economic growth.

In Nigeria, the role of the capital market in economic growth of the country has continued to attract increased attention from the government and market practitioners.  Al-Faki (2008), emphasizes that “the Nigerian capital market has experienced considerable growth in the last decade. In the last year alone(2007), the Nigerian Stock Exchange all-share index has almost doubled to 51,000 points, and market turnover has also increased”. According to him, the factors responsible for this growth of market are firstly, public enlightenment programmes that the Commission carries out periodically to reach and enlighten the public all over the country. Other factors are the reduction of the cost of transaction which has enhanced competition in the Nigerian capital market. The Commission, in collaboration with other stakeholders, has also continued with the efforts aimed at promoting the reactivation of the bond market in Nigeria.

According to Wilkinson (2007), “deregulation is defined as dismantling or abolition of state intervention in economic matters with the purpose of reducing the influence of the state in the economy, abolishing bureaucratic obstacles and legal regulations”.

The deregulation of the Nigerian economy started with the introduction of the Structural Adjustment Programme (SAP) in July 1986 and since then, conscious efforts are made regularly to put in place new policies and where necessary, fine tune existing ones to ensure rapid and sustainable economic growth of the country; emphasizes reliance on the country’s natural resources (Nigeria, 1986).

As observed by Okereke-Onyiuke (2000), properly articulated and implemented, these government reforms are bound to improve the performance of the Nigerian capital market as a vehicle for increased capital formation thereby leading to rapid economic growth of the country”. This improvement would help the capital market’s ability to mobilize savings, attract new listing and liquidity through increased trading activities (turnover).


Therefore, this study attempts an assessment of the performance of the Capital Market in the deregulated Nigerian economy and covers the period 1986-2006.



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