The Impact of Privatization on Capital Market Development and Individual Share Ownership

20 Pages Posted: 17 Apr 2005

Date Written: October 3, 2004

Abstract

In this paper, an attempt has been made to estimate the impact of share issue privatizations on the growth of the Nigerian capital market (especially stock markets), and to examine the effect privatization has had on the pattern of share ownership by individuals and institutional investors. Privatization broadens and deepens the capital market resulting from increased listings and market size, improved liquidity and regulatory infrastructure, improved awareness and enlarged investor base. Privatization has also provided opportunity for risk diversification, enhanced professionalism and increased government attention. The implementation of the first and second round privatization has resulted in a tremendous boost to the total equity market capitalization, number of listed equities and the all-share price index. Besides, the market capitalization, profit before tax and cash dividend of most of the affected enterprises had improved considerably as these companies offered over 1.3 billion shares for sale to the public and were purchased by over 800,000 shareholders, many of whom were first timers in the market.

Although the capital market has been beneficial to the privatized companies, it is important to note that the companies themselves have not fared much better. High transaction (or floatation) costs make it expensive to raise money from the market and the shallowness of the market limits the amount of money that can be raised there, even by companies with the best financial records. Price volatility and the existence of a large informal market in quoted securities cast a pall on the efficiency of the capital market as a framework for resource allocation and mobilization. In spite of the identified shortcomings, the privatization program has enhanced the development of the Nigerian capital market.

Keywords: Privatization, capital market, shareownership

Suggested Citation

Tanko, Professor Muhammad, The Impact of Privatization on Capital Market Development and Individual Share Ownership (October 3, 2004). Available at SSRN: https://ssrn.com/abstract=689702 or http://dx.doi.org/10.2139/ssrn.689702

Professor Muhammad Tanko (Contact Author)

Kaduna State University ( email )

Tafawa Balewa Way
P. M. B. 2339
Kaduna State
Nigeria

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