Background to the Study

Business firms, as well as individual units, often need to raise capital. On the other hand, some individuals and firms, even governments have incomes that are greater than their current expenditure, so they have funds available to invest. But only a few individuals and institutions are in the position to provide all forms of finances needed to fund big businesses.

The financial system is a framework within which capital formation takes place. In other words, it is the framework within which the savings of some members of the society (surplus spending unit) are made available to other members of the society (deficit spending unit) for productive investments. It enables the speedy transfer of funds from the surplus sector of the economy for profitable investment. Put differently and clearly, the financial system provides the economy, with the allocative sector through which scattered savings of the masses in the society are first aggregated and then disaggregated among the economic unit. This service is rendered through the provision of financial resources to meet the borrowing needs of individuals, business enterprise and government to facilitate investment in savings funds, also to promote a sound payment mechanism.

Financial resources enable nations to harness economic resources for development. The World Bank (1989) writes that the difference between the rich nations and poor nations is attributed to lack of financial resources to harness the economic resources of poor nations.  Financial deepening or the development of the financial system plays an important role in raising the adaptability and pace of development of an economy through its effect on savings and investment (Killick and Martin, 1990). Thus an efficient financial system that is supported by a good regulatory system promotes a country’s economic growth and development.............

Statement of the Problem

There is abundant evidence that most Nigerian businesses lack long-term capital. The business sector has depended mainly on short-run financing such as overdraft to finance even long-term capital. All such firms need to raise an appropriate mix of short and long-term capital (Demirguc- Kunt Levine 1996).

According to Donwa and Odia (2010), the paucity of long-term capital has posed the greatest predicament to economic development in most African countries including Nigeria. Although most recent works of literature on the Nigerian capital market have recognised the tremendous performance the capital market has recorded in recent times, Ngredo and Torbira, (2014), reveal that there are two divergent opinions on the role of capital market activities in Nigeria; the first view is that capital market activities synchronised the divergent preferences of portfolio managers and financial institutions and those of savers by mobilizing long-term funds; the alternative view is that capital market merely.............