Financing capital investments through the stock exchange system in Ghana

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In 1988, the Government of Ghana, as part of the ERP, introduced the financial sector reforms which sought to improve resource mobilisation and increase the efficiency resource utilisation. Included in this reform is the quest to develop money and securities markets to enhance the mobilisation of long-term investible capital among others. Consequently, the GSE was set up in 1990 to provide an avenue for the investing public to make good their savings and for companies and businesses to have increased and easy access to long-term investible capital. The study thus examines the benefit of the stock exchange system to capital investment financing in Ghana, especially, its role in mobilising and allocating domestic savings and foreign capital. It examines the extent to which the GSE has attracted investible capital to businesses, the contribution of the GSE to the improvements in capital structure balances of businesses, the relationship between the stock exchange system and economic and industrial performance and what factors have contributed to the low listing on the market among others. The research adopts the longitudinal comparison research design and trend studies and uses both the purposive and systematic sampling method to select respondents and institutions. Data was thus collected from the GSE files and officials, management of listed companies and selected sample from 100 top businesses in Ghana as well as medium size firms located in Kumasi. Also, 5 securities brokerages that have direct bearing on the variables under investigation are sampled. On the whole 53 companies and brokerages are interviewed. Gross domestic product, gross capital formation, total national investment, rate of inflation, interest rates, discount rate and foreign exchange rate figures are obtained from the annual financial reports of the Ministry of Finance, Ghana Statistical Services and Ghana Investment Promotion Centre. Using the above information ratios are calculated, and growth rates estimated and the information analysed to measure market performances and efficiencies. Also, correlation analyses and test of hypotheses are done to see whether one could find significant relationships between the variables under considerations. The study points out that, an increasing proportion of new capital funding has in fact been raised by the stock market. It argues that a reasonably efficient financial and economic environment is necessary for the development of the stock exchange system in Ghana and that several constraints do prevent the market from providing adequate funds for long- term investment. The study reveals that the stock exchange system shows considerably low number of listed companies, low number of new listing per year, relatively small market capitalisation and low total funds rose per year. Factors inhibiting market growth include the small size and limited role of the domestic private sector, low access to the market by foreign investors, deterrent activities of alternative sources of capital financing, poor institutional setting, poor education and outreach and lack of adequate governmental support among others. For the GSE to reach a stage where it can serve as a barometer of domestic economic conditions and reflect the degree of confidence in which the country is for global investors, the factors that inhibit its growth and development need to be ameliorated completely. Since the stock exchange system does well in an environment characterised by declining fiscal deficits, stable and realistic exchange and interest rates, low inflation, flourishing private sector, and rise in the flow of foreign capital as well as improvements in technology and communications, it is suggested that these enabling factors should be ensured. Stock markets around the world are used as a measure of the state of the economy and if Ghana is to achieve the goals of its Vision 2020, businesses in Ghana should be more foresighted and solicit long-term funds through the GSE.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirement for the award of the Degree of Master of Science in National Development Policy and Planning, 1999