THE EFFECT OF STOCK MARKET ON THE SURVIVAL OF SMALL AND MEDIUM SCALE ENTERPRISE (SMES) IN NIGERIA
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- INTRODUCTION
The study shall attempt to examine the effect of stock market on the survival of Small and Medium scale enterprise (SMEs) in Nigeria. The stock is one of the most important sources for companies to raise money. This allows businesses to be publicly-traded or raise additional capital for expansion by selling shares of the ownership of the company in a public market. The liquidity that an exchange affords the investors give them the ability quickly and easily sell securities. This is an attractive feature of investing a stock, compare to other less liquid investments. Some companies are actively increase liquidity by trading in their own shares.
1.2 BACKGROUND TO THE STUDY
History has shown that the price of shares and other assets, is an important part of the dynamics of economic activities, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy likewise, productive project may remain redundant where absence of an efficient set of financial institution exists. In fact, the stock market is often considered the primary indicator of a country’s economic strength and development.
Any modern economy is made of a number of economic units and agents namely individuals, households, corporate bodies and the government, each of which requires financial facilities (money and credit) to carry on its economic activities. It is however, impossible for any of these units to always provide all the funds required for its economic activities hence may have cause to borrow.
Generally, income earned is partly spent on consumption and partly saved. The portion is then channeled into investment through a verity of financial machineries (institutions and markets.)
By definition, a financial system is considered as the collection of markets, individuals and institutions regulations and techniques which facilitate the flow of scarce loan-able funds in the form of credit from savers to borrowers for consumption and investment purpose. It is the grouping of all financial agents whose transactions determine as well as the aggregation of all financial arrangement, institutions agents and mechanism by which they relate to each other with the financial sector and globally, financial system is considered as one of the most important inventions of modern industrial societies.
Financial system however, varies in the level of developing economics including Nigeria is therefore to have in place a highly developed financial system which is the hallmark of modern business enterprise economy.
However, production of goods and services in the most efficient manner has continued to be the only viable and reliable option for growth development, it is impossible for a sustained high productive level to be attained without a well-developed industrial sector. Industries normally operate either in a large or small scale both in the public and private sector. In Nigeria, the private sector enterprises cover a wide range of different types of industries as distinguished by various criteria such as size, sector, ownership structure, employment and technology.
The small and medium Enterprises Development Agency of Nigeria (SMEDAN), (2011) classify industries into micro, small and medium Enterprises (MSMEs). The significances of MSMEs to growth, productivity and competitiveness of the economies of developing countries is universally recognized. MSMEs are generally acknowledged in (Kasekende and opondo 2003) as the bedrock of the industrial development and world economies. They are more innovative than larger firms are. MSMEs development can play a key role in entrepreneurs’ development through their contributions to economic advancement and social empowerment.
1.3 STATEMENT OF THE PROBLEM
It is relatively scarce to find any study which integrates financial institution and capital market and which also indicate the relevance of these institutions and markets to economy in general.
Promoters of small and medium industries are people with ideas, dream and imaginations but majority of these entrepreneurs lack needed financial means to translate their dreams and aspiration into concrete material to create value/services that will earn them the desired wealth.
Lack of management and financial accounting practices in small and medium scale industries leads to poor formulation and execution of policies in sub-sector. This is because many industries that fall into these categories do not keep proper accounts of transactions. As a result, many small and medium enterprises find it difficult to obtain loan from financial institution who demands for their past financial statement business plans and feasibility studies.
A financial market is also made up of series of arrangements, institutions, and facilities and process that facilities the exchange of fund (government, corporate bodies and individuals). The duration of the lending/borrowing arrangement and the nature of the instrument/product used, determines the classification of a financial transaction as either a money market or capital market activity, for an industry to go for a long term finances, such company has to have what it takes before the loan can be given out. e.g. building or land that actually belong to the establishment.
Small and medium scale industries generally have limited access to long term capital even their access to short term financing is limited and sometime attained at a penal rate interest and other conditionality. The worst of this is the banking sector tends to be lukewarm in meeting the credit requirement of the inadequate collateral, including the inability to raise the required equity contribution by MSMEs.
This study shall attempt to investigate how effective the stock market is on the survival of small and medium scale enterprises in Nigeria.
1.4 OBJECTIVES OF THE STUDY
The general objective of this study is to determine the effect of stock market on the survival of small and medium scale enterprises in Nigeria. While, the specific objectives are to:
- Determine the positive impact of stock market to the growth of SMEs.
- Evaluate the problems and prospects of the stock market towards SMEs.
iii. Appraise the contribution of capital market to the raising of funds by SMEs.
1.5 RESEARCH QUESTIONS
The study aims at addressing such questions as:
- How far has the Nigeria capital market been able to properly harness its saving for internally generated growth?
- How efficient is the capital market in terms of lowering cost of raising funds?
iii. What is the average level of participation by the rural communities in the Nigeria capital markets?
- How accessible is the Nigerian capital market to the international community?
1.6 STATEMENT OF HYPOTHESIS
For this study to be properly guided, the following hypothesis are formulated
H0 Null Hypothesis (HO): stock market has no significant impact on the survival of small and medium scale enterprises in Nigeria.
Hi Alternative Hypothesis (HI): stock market has significant impact on the survival of small and medium scale enterprises in Nigeria.
H0: Null Hypothesis (H0): Nigeria capital market is not a good source of long term capital for SMEs
Hi: Alternative Hypothesis (Hi): Nigeria capital market is a good source of long term capital for SMEs.
1.7 SIGNIFICANCE OF THE STUDY
A capital market is not a known and easily identifiable market on which commodities are traded. Rather, it is a market for intangible commodities of both medium and long term nature. The markets and its potentials are therefore not widely understood and appreciate by the majority of Nigeria populace not even some of the elite.
It would also assist the general public to know the positive impact of the Nigeria stock exchange towards the development of the nation economy.
1.8 JUSTIFICATION OF THE STUDY
The researcher is interested in this study to help future researchers to have more knowledge on the impact of stock exchange market in small and medium scale enterprise and to reveal how small and medium scale enterprises are being financed.
1.9 SCOPE OF THE STUDY
The research will look into the proper framework of stock enterprise benefits. The researcher appraised what is required to examine the positive contributions of Nigerian stock market in financing the nation’s economic development with a view of recommending ways for consolidation.
