INrl'RODUCri'fON

The Stoclc Exchange is essenlially a capitalist insti(ution, Okafor (1983, p.

91). Illat is why i t is exlre~nelyimportant, i n tllc ecotlomic lifc in the U.S.A.,

tJ.1~.and other countries of the Western world. 111Nigeria Ilie develop~nc~ltof

a    secur-ities ~narlcethas been inilwx~cctland fosterctl by the g o v c r n ~ n c ~as~t ,i n

some other LDCs. There was the conviclion that the seci~ritics~rlarltetcould bc

consitlcr;~blydepcndcd upon to financc industrial growlh, Eltcch.;, (1989, I>.6).

The Nigcrian Stoclc Excllaiigc serws Ihc important Sil~irtion of finmicia1 interrnetliaiio~~ o i ~ seconomy. 111 perfor~ni~igIhis Sunctio~~thc sroclt exchange provicles esseritlal s~lpportfor fiiiancing both thc privale ai d the govcrnmcnl

e~ite~p - isewhiles  creating    somc   cppostt~rlilies for   the,    u~~cic~~-priviIcgcclto

participate, I~owever re~notely, i n corporate o\v~lersliip. Th!ns, it providcs opportunities fur government, inslitu~ioris and companies to rzisc new or

The docu~nentnsyevidcnce of owncrsllip or e~l~itlenlcntto claim upon the

assets of (lie issuing orga~iisatio~l,w!iat we tern1 securities. To facili tale trading in thcse secusitics prices are usr~allycompctitivcly fixccl by the consensus of thc ~narltelparticipants, It is cxpcclctl Illat this collsensus talces into account the truc

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worth  of the securities, by consiclering the perForlnn~iceand tlic qualily o r tlie

nialiagernc~~tof tile orga~iisationThis. Occornes crr~cial\dim i t is sealisecl that tlic

filial ~narltctprice of the sccurity is seen as a mirror reflcctirlp the pcri'ornla~~ce and worth of the issuing company. 111 ut11cr words, llle pesforrnancc and worth

ol'the issuing company dclcrmincs the price which investors asc prepared to pay for tiic co~ilpany'ssliarcs. I-Icncc t11c ultinlalc objcctivc of most organisrrtion is to ensure a high market value of their- sharcs, so as lo nlaximise the wcaliir of

their s h a ~ d ~ o l d e rThis. explains why financial nia1lagel.s are always carcrtrl i n allocating earnings bctwcen dividends and retained ear-~lings,as tl~isdecision affccts tlic value of h e firm. 'l'lrus, tllc two cbjectivcs of' cliviclcnd policy viz:

distribution of tlivi~lcnclsand rc:enl.ion of cal-nings fol' g ~ w v t l ~though, desirable,

arc in-conflict. A Iiiglier divide~ldsate nicalls lcss retained ear~~ingswllicl~,may consequerdy result in slower growth a d lowcr ~iiarkctprice pcr sllire.

The ~nnrltetprice or stock should not necessarily bc cqual lo the par value

i n an efficic;~tniarlwt. Thcosetically, a sIia1.e share plus all the futr~rcearni~lgsper sliare of

is worth tlie present valuc of the the jssui~lgC O I ~ ~ B I I ~ .

Contrary to [lie tenets of a n efE::icnt ~narket,tile stock exchange cor111cil occasionnlly intcrvc~ies n the pricing on the NSE, so as lo prevcni irresponsilde bidding. This is to psolcct bolh thc ~ I I ~ ~ S I O Iand'S thc issuing co~iqmiics.

Consequcnlly, i t is lllc opinion of niost rescarcllers Illat mosl of the sllnres on the Nigcria~l Stock Exclia~ige arc ~~ritlcr-valued,For ilistallcc, Adeosrm (1982) co~~tclldsthat the pricing nicclianisrii oT the stock excllangc is escessivcly controlled a d often faulty. Co~ltraryto the above vicw Allit: and Anao (19%)

\ are of the opinion tll;;t     qr~otcclcornpanics usunily llavc realistic ~narltciprices for

provide tlic inveslor. llencc tlic llleol-y of h e vdl~alionof i ~ ~ c o ~;;in.eains lm a

central a n d lionourcd place in the valuation by investors of