Fredric Benhan (1960) defined capital formation as the amount, which a community adds to its capital during a period. The more capital a community has, the greater will be the volume of its output, which invariable leads to economic development. For the purpose of these studies, capital formation will be viewed from the contribution made to it by the Nigerian stock exchange. Also for the purpose of the study, capital formation should take into account only the issues in the stock exchange.
To many people the stock exchange is a gaming house where underserved fortunes are made overnight on paper. To the city and to most economist, on the other hand the market is of vital importance to government and industry alike, for it is there and there alone that new long – term capital can be railed voluntarily from the public on a large scale and in short space of time. One object of this study is to examine critically the part of the stock exchange really plays in the capital market and in our economic life.
When an individual subscribe to an entirely new share, he is buying not only the right to dividends or asset or any other benefits to which he is entitled as a member of the company. He is also buying the possibility of disposing of his interest on the stock exchange. He acquire with his shares the right to execute deed, transferring his securities for a consideration to some one who may be a stranger both to the company and to himself, and with whom he is put in content entirely through the market’s agency.
This is the one of the essential attributes of a quoted as distinct from an unquoted stock, the stock exchange in its presents firm could not exist, and without it, the stock exchange would not grant quotation.