CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
For any economy to remain afloat in its bid for survival m today’s globalization, deregulation and liberalization of markets, it needs to have an efficient financial system to direct the allocation of its resources capital markets and institutions, of which the stock exchange is an integral part of and have become of, paramount importance in a dynamic economy as Nigeria
The capital market is a sub-set of financial system that provides the accelerated growth of the economy. This is done by efficiently channeling fund from investors into productive sectors of the economy. It serves as an avenue for government and companies to raise long-term funds to finance their activities (Nwankwo, 2000). The capital market consists of a network of institutions and individuals comprised of regulators and operators who, together, facilitate the smooth operation of the market. In other words, the capital market comprises providers of funds (investors), users of funds (companies and governments), intermediaries (stock brokers, issuing houses, registrars) and regulators (SEC, the Nigerian Stock Exchange and Central Bank of Nigeria). The Nigerian Capital Market is made up of basically two components: the primary and secondary market. The initial sale of securities from the issuing corporation or government to the investor is done in the primary market (yisa, 2001). The issuers uses the funds raised to expand production, build infrastructures and the like very few investors can be persuaded to tie up their funds indefinitely.
Therefore, securities are usually negotiable, enabling the initial buyers to re-offer the securities to any interested party at any prices which is mutual satisfactory. It is, therefore, a function of securities exchange to provide an arena where such mutually satisfactory prices may be determined. It is in this regard that it becomes important to analyze the stock pricing function of the Nigerian capital market, with reference to buyers’ behavior. Osuagwu, (2006) describes buyer behavior as the behavior customer’s or client’s will display in searching for, buying, using, evaluating and disposing-off products, services and ideas which they expect will satisfy their needs and wants. This makes buyer behavior a study of how individuals make decisions to spend their resources on consumption – related items and their evaluation of such purchase decisions. This study therefore appraises the impact of stock pricing on buyers behavior in the Nigerian capital market.
1.2 Statement of the Problem
As a result of both institutional and individual investors staking out their hard earned money m order to earn a reasonable return on securities acquired in companies, it would be necessary to know whether the shares and securities acquired in companies quoted in the Nigerian Stock Exchange are properly priced. However, there is great need to critically consider the following relevant problems as regards the research topic:
1. Lack of information from listed companies
2. Lack of knowledge of the operations and functions of the stock exchange.
3. Difficulty in obtaining quotation in the stock exchange
4. Lack of clear understanding of the pricing of shares and securities in the Nigerian Stock Exchange
1.3 Objectives of the Study
In the light of the pervasive Ignorance shrouding the operations of pricing in the Nigerian capital Market, this study is set to achieve the following specific objectives:
1. To appraise securities pricing on buyer behavior in the Nigerian Capital Market.
2. To evaluate the various methods used in price determination of shares and securities.
3. To inquire into the efficiency of the market for securities.
4. To examine how public investors place reliance on prices of securities in this market.
5. To find solution to obstacles facing pricing of securities on the Nigerian Stock Exchange.
1.4 Research Questions
This research work will attempt to answer the following questions:
(i) How do you appraise securities pricing on buyer behavior in the Nigerian Capital Market?
(ii) How relevant are the method of pricing securities used in the Nigerian Capital market in relation to other methods available?
(iii) What factor is most responsible for efficiency of the market for securities?
(iv) To what extent do public investors place reliance on prices of securities in this market?
(v) What are the possible solutions to pricing of securities on the Nigerian Stock Exchange?
1.5 Research Hypotheses
For the purpose of this research work, it is desirable to test the hypothesis so as to make valid conclusions to either accept or reject the assumptions on the following basis.
Hypothesis One
Ho: There is no relationship between Securities pricing and buyer behavior.
Hi: There is a relationship between Securities pricing and buyer behavior.
Hypothesis Two
Ho: There is no relationship between method of pricing securities and Nigerian Capital Market.
Hi: There is a relationship between method of pricing securities and Nigerian Capital Market.
Hypothesis Three
Ho: There is no relationship between efficiency of the market for securities and buyer behaviour.
Hi: There is a relationship between efficiency of the market for securities and buyer behaviour.
Hypothesis Four
Ho: There is no relationship between public investors’ reliance and prices of securities.
Hi: There is a relationship between public investors’ reliance and prices of securities.
1.6 Scope or the Study
As the topic suggest, this study focuses on the pricing function of the Nigerian Capital Market and its relative influence on buyer behaviour. Therefore, the study confines itself to history, operations and functions of the Nigerian capital market in relation to stock pricing and buyer behaviour. In so doing, selected quoted companies will be used as units of analysis.
1.7 Significance of the Study
This study would be of great benefit to market operators like the stockbrokers, issuing houses and their likes, as it would bring out their short coming in the area of pricing of securities.
It would also be valuable to public investor as it would enlighten them on stocks to invest in.
The study would also be significant to students of finance, accounting, economics, marketing and business administration, as it would educate them on the pricing function of the Nigerian capital Market and .
The study would also assist policy makers in the Nigerian Capital market in developing strategies that would improve pricing efficiency and thereby improving the general efficiency as a result.
1.8 Definition of Terms
A number of concepts that are very central to this study are defined in the following paragraphs. The purpose of the definition is to facilitate an explanation of these terms so that the reader can fully understand the context in which such words have been used in the study:
Buyer Behaviour: This is the anchor of successful marketing practice. It addresses major questions regarding the behavior / action of buyer/consumer/client towards a product, service or idea.
Capital Market: This is the market for long term capital i.e long term financing assets. It is a market where long term financing assets are traded including preference and common stock debentures and bonds.
Stock Pricing: The price of company stock is an indication of the performance of company where stock is properly priced; investors can invest in the most profitable companies based on the stock prices of the companies. The Securities Market: This refers to the market where, the purchase and sale of securities takes place. It has three dimensions i.e. the capital market, money market, and secondary market.
Primary Market: This refers to the new issues market when a firm issues new security either bonds or common stock, the securities are sold in primary market since they are new issues. Once the securities have been sold, any future sales occur in the secondary market. The primary market also exists in the money market.
Secondary Market: This is the market which exists as a result of future sale of securities which had initially been traded upon in the primary market.
Right Issues: This is the raising of more funds by quoted companies through special issues of shares to existing shareholders of the issuing company. It is typified by the on-going privatization exercise.
