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Factors Influencing the Utilisation of the Capital Market in Zambia

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Factors Influencing the Utilisation of the Capital Market in Zambia FACTORS INFLUENCING THE UTILISATION OF THE CAPITAL MARKET IN ZAMBIA BY JOSEPH CHOLA A Dissertation submitted to the University of Zambia in partial fulfilment of the requirements for the award of Master of Science in Accounting and Finance. THE UNIVERSITY OF ZAMBIA LUSAKA 2019 COPYRIGHT DECLARATION All rights reserved. No parts of this dissertation may be reproduced, stored in any retrieval systems or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise without the consent of either the author or the University of Zambia. © Joseph Chola, 2020 i AUTHOR’S DECLARATION I, Joseph Chola, do hereby declare that this is my original work and has not been presented to this University or any other University/College for the purpose of Examination. Signature:………………………… Date:………………………………… ii APPROVAL This dissertation by Joseph Chola is approved as fulfilment of the requirements for the award of the degree of Master of Science in Accounting and Finance. Examiner 1 Signature Date ………………………………. ………………………….. ………………….. Examiner 2 Signature Date ………………………………. ………………………….. ………………….. Examiner 3 Signature Date ……………………………….. …………………………… ………………….. Chairperson Board of Examiners Signature Date ………………………………. …………………………… ………………….. Supervisor Signature Date ………………………………. …………………………… ………………….. iii DEDICATION This piece of work is dedicated to my wife Vivian, my son Kabembo Besa Chola, my daughter Mwape Besa Chola for their understanding during my absence from home to ensure that I completed studies for the award of MSc degree. My late brother Enock who started teaching me things I could not even understand at a tender age, which inspired me to push further in my education so that I can have an opportunity to learn them and know more about them. To you all, I say God bless. iv ACKNOWLEDGEMENTS I remain indebted in gratitude to my God Almighty, most gracious, most merciful, who gives wisdom, knowledge and understanding and makes all things beautiful and possible in His time. I am grateful to all persons who encouraged me at times whenever I felt down and weak. Eng Dr Kasongo Mwale Richard, my supervisor for his invaluable guidance and support and encouragement that contributed significantly to the timely completion of the study. Special thanks are extended to my friends from the 2016 cohort who gave me the encouragements to soldier on with the research in spite of the many pressures encountered. Heartily thanks to my late Mum and Dad who have always been an inspiration to me. Lastly, a sense of gratitude is acknowledged to all the staff and lecturers at Graduate School of Business (GSB) for their encouragement during my stay at the University of Zambia. v ABSTRACT The capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Capital markets growth in Africa is gradually taking shape. This growth is premised on how they are utilized. This study sought to find the factors influencing the utilisation of the Capital Market in Zambia. The independent variables were market capitalisation, number of listed companies, number of financial instruments traded, Stock Price Index and the Market Turnover. The dependent variable in this study was the capital market utilisation. Further, secondary data was collected for a period of ten (10) years from 2007 to 2017. The study employed a descriptive and exploratory research designs and linear regression model was used to analyse the data. SPSS version 23 was used for data analysis purposes. The results for the study produced an R-square value of 0.958 which means that 96 percent of the utilisation of capital market is attributed to the variations in Market Turnover, Number of Listed Companies, Number of Instruments traded, Stock Price Index and the Market Capitalisation while the remaining 4 percent of the variables in the model are not explained. ANOVA results show that the F-test of the variation in the regression to the ratio of the variation of the residual or error was found to be 34.526, the p value was 0.000 which is less than 0.05 level of significant and reliable. The relationship between listed companies and the number of companies that are registered with PACRA was found to be 0.042 level of significance. This shows that there is a very weak correlation between the two; however, they are statistically significant. The study discovered that in ten years’ time the market raised K603 Billion with rights issue accounting for 87 percent, IPO, 0.17 percent, MTN 0.15 percent, Corporate Bonds 12 percent, Zambia depository receipts 0.015 percent and preference shares grabbing a 3.4 percent. The market turnover was compared to GDP ratio and it was found that the ratio has been fluctuating between 0.04 percent and 4.24 percent in the last 10 years. This shows that the market is not utilised. In addition, the study reviewed that for the last 10 years the market capitalisation to GDP ratio of the Zambian Economy has been floating within 22.92 percent to 40.14 percent with the average of 31.76 percent. This shows that the capital market is underutilised. Therefore, the study recommended that the Government should revise the regulatory framework. The policy makers should strengthen the capital market and address the major challenges that are affecting the utilisation of the capital market. Key Words: Capital Market utilisation, Market Capitalisation, Financial Instruments, Stock Exchange, Issuers. vi TABLE OF CONTENT COPYRIGHT DECLARATION .................................................................................................. i AUTHOR’S DECLARATION .................................................................................................... ii APPROVAL ................................................................................................................................. iii DEDICATION .............................................................................................................................. iv ACKNOWLEDGEMENTS ..........................................................................................................v ABSTRACT .................................................................................................................................. vi TABLE OF CONTENT .............................................................................................................. vii LIST OF TABLES ..................................................................................................................... xiii LIST OF FIGURES ................................................................................................................... xiv LIST OF APPENDICES .............................................................................................................xv LIST OF ABBREVIATIONS AND ACRONYMS ................................................................. xvi CHAPTER ONE ..........................................................................................................................17 INTRODUCTION ........................................................................................................................17 1.1 Introduction ........................................................................................................................................ 17 1.2 Background to the study ................................................................................................................... 17 1.3 The Statement of the Problem .......................................................................................................... 19 1.4 Aim of Study ...................................................................................................................................... 19 1.5. Main objective of the Research ...................................................................................................... 20 1.5.1 Specific objectives ........................................................................................... 20 1.6. Specific Research Questions ........................................................................................................... 20 1.7 Significance of the study ................................................................................................................... 20 1.7.1 Government Policy Makers ............................................................................. 20 vii 1.7.2 Investors ........................................................................................................... 21 1.7.3 Academicians ................................................................................................... 21 1.8 Scope of Study ................................................................................................................................... 21 1.9 Limitation of the Study ..................................................................................................................... 21 1.10 Organisation of the Study ............................................................................................................... 22 1.11 Chapter Summary ............................................................................................................................ 22 CHAPTER TWO .........................................................................................................................23
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