MODELLING THE FINANCING PATTERN OF
DEVELOPMENT BANKS (DBs) IN NIGERIA
Yusuf Attahir MAIYAKI
Maiyaki is a Lecturer at the Department of Accountancy Kaduna Polytechnic, Kaduna
[email protected]
Abstract
This study models the financing pattern of Development Banks (DBs) in Nigeria with particular reference to the Bank of Industry (BOI). Documentary evidence, annual reports and accounts form the data basis of this paper. A Simple Multiple Regression Model was developed incorporating two independent variables (liquidity and shareholders fund) and one major dependent factor (loans and advances), representing the bank’s financing pattern. The model was used to examine the extent to which these predictor variables explain the bank’s loan and advances during the period 1996 – 2006. The regression results reveal that liquidity is an important factor in explaining the financing pattern of DBs in Nigeria. However, a contrary impact has been documented in relation to shareholders fund. The paper recommends the need for BOI and other DBs to maintain constant liquidity planning to keep abreast of societal credit needs in the form of loans and advances. In addition, the study further recommends the need for the bank to continually reduce the allocated amounts to shareholders fund in the form of reserves to enable it improve on developmental activities.
Introduction
As the global financial crisis continues to brew and hit hard the world economy, the need for development financial assistance and programmes (especially for countries worst hit) becomes paramount and cannot be overemphasized. Nigeria, as a developing economy, comes up with a lot of these developmental programmes. This is out of concern with the slow pace of economic growth and development of the nation, and the recognition of the need to mobilize exceptional resources for investment in the critical sectors of the economy.
One of these programmes is the establishment of development banks. Development banks, otherwise known as Specialised Financial Institutions, or Development Finance Institutions (DFIs), are institutions which, according to Charitonenko (2005), are established to contribute to the development of specific sectors of the economy. Development banks form part of the financial system of any economy. Financial systems have, over the years, been recognised as vital role players in economic developments. In the same vein, Nnanna et.al (2004), see the financial sector as a catalyst for economic growth if it is healthy and well developed. However, the benefits accruable from a healthy and well developed financial system cannot be achieved until it is related to savings mobilisation and efficient intermediation role - hence the essence of development banking.
Development banks are established to support enterprise with term loans which commercial banks are indisposed to. Development banks are tailored to provide long term funds in the form of equity and credit financing to facilitate growth and expansion for industrial development. As Maiyaki (2009) contends, industrial development can only be achieved in a situation where there are sufficient funds. Such are sourced from long term funds to finance long gestating projects. Essien (2001), similarly views that long gestating projects need long term loans in order to be viable.
It is noteworthy that the availability of investment capital for industrial enterprise stem mainly from the interlock of an economy’s financial structure and the financial intermediaries that function within that structure. Within this context, Akintola (1990), views a company’s financial structure as exhibiting three facets: government financing in the form of subvention or grant, self-financing from enterprises own profits and voluntary savings. None of these facets is a stimulating source to enterprises because of their nature and commercial banks are generally indisposed to lending long-term capital investment. Researchers in previous studies (Essein, 2001; Caprio et.al 1997; Myers, 1997; Ofek, 1993; Rajan, 1992) have contended the same. It is against this backdrop that governments and other interests, in order to facilitate long-term investment funding, found if necessary to create the special financial credit institution popularly known as development banks. Because the banks are expected to act as a vehicle through which term finance could be provided for development projects, they are therefore the major operators at the long-term end of the financial market.
In the light of the foregoing, this paper examines the financing activities of development banks in Nigeria with particular reference to the Bank of Industry financing pattern. Studies such as Akintola (1990); Esien (2001); Long (1983); Myers (1997); Shaw (1973), and World Bank (2006), dwelt peripherally on development banks’ activities and their development impact with no extension to their financing pattern. This paper contributes to existing literature in further painstakingly examining and determining the financing pattern of development banks in Nigeria.
The objective of this paper is to evolve a simple empirical model that incorporates two independent variables (liquidity and shareholders fund) to predict one major dependent variable (loans and advances) for the purpose of determining and explaining the financing pattern of development banks in Nigeria.
For this purpose, two hypotheses, postulated for the paper, are addressed as follows:
HO1: Liquidity does not have significant explanatory or predictive power over BOI’s loans and advances.
HO2: Shareholders fund does not have significant explanatory or predictive power over BOI’s loans and advances.
Conceptual Issues on Development Banking
There is a sizeable literature on the conceptual framework of development banking. According to Akintola (1990), the concept of development banking revolves around the provision of adequate supply of capital for capital formation in the desired sector at the appropriate time. This concept seems to be the guiding principle of investment in finance where funds are transferred from surplus to deficit areas of the economy. Ovwielefuoma (1993), lends credence to this assertions. Garson, et.al (2006), however, sees the underlying concept of development banking as government intervention in the economy in order to promote optimal conditions for development. Hence, Maiyaki (2009) concludes, ownership of development banks is still a preserve or monopoly of governments of many countries. The opinion of Garson et.al on the concept of development banking is the stand view of this paper.
The concept of development banking emerged after the Second World War. Hence, Jhingan (2001), sees it as a Post World War II financial innovation. This is because the need for reconstruction funds for the affected countries, consequent upon the Great Depression in 1930s, resulted in the establishment in 1945, of the International Bank for Reconstruction and Development (IBRD). The IBRD, Jhingan (2001) asserts, became recognised as worldwide institution for development and reconstruction. This concept precipitated further the setting up of quite a large number of banks around the world with the aim of coordinating the development activities of different nations.
Development Bank (DB) has been defined variously by different authors in previous studies. Diamond (1957), conceives DB as “an institution designed to promote and finance enterprises in the private sector. However, Kane (1975), in Akintola (1990), provides a wider definition (with no restriction to the private sector) by viewing a DB as a financial intermediary supplying medium and long term funds to bankable economic development projects for financing. World Bank (2000), defines development banks as financial institutions that derive their funds mainly from the government, other financial institutions and supra-national organisations. This definition of the World Bank is consistent with the description of Jhingan (2001); the conceptual view of Garson, et.al (2006); and the concluding remark of Maiyaki (2009). It is, however, not consistent with Development Finance Forum (DFF, 2004), that views DB, in a snappy perspective, as financial intermediaries that are also positioned to play critical economic development roles. Economic development, according to the forum, refers to a substantive and sustained change in the condition of poor people.
Finally, Charitonnenko (2005), sees DBs as specialised banks established to contribute to the development of specific sectors of the economy. The latest definition typically depicts DBs’ areas of coverage to be restricted to particular sectors which may have been earmarked as requiring special attention. In Nigeria, Akintola (1990) asserts, industry such as mining, education, housing, as well as agriculture, being commonly among such sectors for which DBs are established (either by individual, firms or governments) to provide medium and long term credit to enterprises in the form of equity or loan financing.
Development Banks and their Activities in Nigeria
According to Nnanna et.al (2004), the Federal Government, to complement the role of stock exchange, established some key development banks to provide specialised long-term capital for sectoral growth and development. Thus, Maiyaki (2009) opines, these DBs made varying contributions, within the mandate, to their various sectors of responsibility. Each institution was given the responsibility of promoting the development of a specific sector or sub-sector (Central Bank of Nigeria (CBN, 2000). Between 1959 and 2000, DBs at various levels (national and state) were established to provide funds for the different development projects across the country. As Anyanwu (2004) notes, they funded various projects and enterprises, many of which are in operation today. There are five (5) DBs in Nigeria currently providing development finance activities: Bank of Industry (BOI); Federal Mortgage Bank of Nigeria (FMBN); Nigeria Agricultural Cooperative and Rural Development Bank (NACRB); Nigeria Export-Import Bank (NEXIM); Urban Development Bank (UDBN) Plc (CBN, 2006).
According to the CBN (2006), the various development banking financing activities carried out by the DBs in Nigeria are: Agricultural Credit Guarantee Scheme (ACGSF); Common Surveillance; Micro Finance; Small and Medium Scale Enterprises Equity Investment Scheme (SMEEIS); Refinancing and Rediscounting Scheme; Agricultural Credit Support Scheme (ACSS). Each of these activities is an initiative of the Federal Government and the CBN with the active support and participation of the Bankers Committee (CBN, 2006). However, some of these activities are rebranded by the DBs to suit the given mandates and their sectors of responsibility. Of the rebranded financing options for enterprises, the following opportunities are available at BOI in the form of products and services: Short, Medium and Long-term Financing; Equity Financing; Lease Financing; Co-Financing Syndication; Business Development Support Services; International Trade Services such as Documentary Credit (BOI, 2005).
Methodology
This paper investigates the potentialities of two key financial indicators (as independent variables) - liquidity and shareholders fund, in explaining the financing pattern (using loan and advances as a surrogate) of the Bank of Industry. Thus, the methodology adopted is an integration of the erudite approaches employed in three different areas of study: Aspachs et.al (2005); Musa (2005); and Thorsten et.al (2006). First, the paper uses liquidity as independent variable, like Aspachs et.al (2005:10), who uses similar variable in predicting bank liquidity holdings (lending policy) over a period of time and from a panel of UK-resident banks. Second, the paper takes a leaf out of Musa (2005) and likewise Thorsten et.al (2005), by modeling (via a simple regression model) certain key aspects of the BOI’s financing programme over a period of time using similar variables (as in Aspatch et.al) above.
By and large, the paper utilizes quantitative, descriptive and case study research approach. In addition, the paper relies on parametric statistical data and the use of such data in testing hypothesis.
The research is targeted at establishing the empirical relationship existing among certain key financial indicators of BOI over the period 1996 to 2006.
The paper draws extensively from secondary data source. This is because the estimated regression model requires the use of pooled time series data in the form of financial information. The sources of data include the annual reports and accounts of the company for the years covered. It also includes such documentation as journals, conference papers, newspaper reports, textbooks, CBN statistical bulletin and bullions, BOI corporate briefs, newsletters, magazines and pamphlets.
The simple regression equation developed for the paper uses one major criterion variable – loans and advances, and two predictor variables – liquidity and shareholders fund, and is thus stated below:
LOADV = α1 + β1 Liq + β2 SHF + Єi
Where:
LOADV = Loans and Advances, representing the money value advanced to various client establishments within the study period after deducting provision for doubtful accounts and interest in suspense (See Akintola, 1990). It is the proxy for the bank’s financing pattern in this paper.
Liq = Liquidity, representing the difference between current assets and current liabilities during the period (see Inanga and Ajayi (2001: 508).
SHF = Shareholders fund, representing the share capital and reserves as classified and accumulated in the balance sheet of the bank for the various years (BOI, 2006).
However, the regression model is run using SPSS 13 computer package.
Results and Discussions
The simple descriptive statistics is first presented in table 1; the correlation matrix is presented in table 2, while the analyses of tolerance and variance inflation factor are presented in table 3.
Table 1: Sample Descriptive Statistics (1996 – 2006 data)
Variables
Mean
Minimum
Maximum
LOADV
3493943
56,046
6283384
LIQ
4288162
67,140
12376038
SHF
2872696
554830
7690319
Source: SPSS Regression Results.
LOADV = Loans & Advance; Liq = Liquidity; SHF = Shareholders Fund.
Table 1 (above) shows the mean, standard deviation, minimum and maximum values of the variables used. The full results are contained in the Appendix.
The table indicates that, on average, the rate of loan and advances and liquidity are both at exactly 10 percent, while shareholders fund have a mean of about 9.1 percent. The level of loan disbursement (loan and advances) during the period lies between 0.16 per cent (N56,046, in million) and 17.98 per cent (N6,283384, in billion). In the same vein, the level of liquidity lies between 0.16 percent (N67,140, in million) and 28.86 percent (N12,376038, in billion.) While shareholders fund lies between 1.93 percent (N554830, in million) and 26.77 percent (N7,690,319, in billion.)
Table 2: Correlation Matrix for the Sample Observation
Variables
LOADV
LIQ
SHF
LOADV
1.000
0.724
0.365
LIQ
0.724
1.000
0.828
SHF
0.365
0.828
1.000
Source: SPSS Regression Results.
For an explanation of the variables, see table 1.
Table 2 indicates that there is a positive relationship between loan and advances and liquidity as well as shareholders funds. Also, the correlation between the independent variables is not highly significant. It is about 83 percent which is still below the standard ceiling rate. Correlation level above 90 percent is unacceptable (see Gupta, 2002), as well as (Musa, 2005).
Table 3: Tolerance Value and Variance Inflation Factor (VIF)
Variables
Tolerance
VIF
LIQ
0.314
3.183
SHF
0.314
3.183
Source: SPSS Regression Results.
For an explanation of the variable, see table 1.
Table 3 above contains the two advanced measures of assessing multicollinearity in spite of the indication of non-multicollinearity in the correlation matrix (in table 2). The tolerance values (as indicated in the table) were consistently less than 0.7, indicating complete absence of multicollinearity (See Musa, 2005). In the same vein, the variance inflation factors were consistently less (smaller) than ten. This further substantiates the fact that there is complete absence of multicollinearity (e.g. Musa, 2005). By and large, there is clear indication of the appropriateness of fitting the model with the two independent variables.
Table 4: Determinants of BOI Financing Pattern from Regression Results
Variable: Intercept
SHF
LIQ
R2
AdjR2
F-Stat
Durbin Watson
1610666
-0.570
0.821
0.699
0.613
8.113
2.386
(2.354)
(-2.016)
(3.624)
Source: SPSS Regression Results.
t- values are in parenthesis. All values are significant at 5%.
In table 4, regression equation relates loans and advances to liquidity (Liq) as well as Shareholders Fund (SHF). The estimated regression relationship for the model is: LOADV = 1610666 + 0.821 (Liq) – 0.570 (SHF).
There is an indication that of the two independent variables from the equation, one has a significant positive effect on loans ad advances, the other has a significant negative effect. The variable with a significant positive effect is liquidity. An increase in the variable is expected to increase loans and advances. The variable having a negative effect on loan and advances in the equation is shareholders fund. This signifies that an increase in this variable will lead to decrease in loan and advances. The Durbin Watson Statistic, in the regression, indicates no serial correlation.
The result, therefore, provides evidence for the rejection of null hypothesis (1) and the acceptance of null hypothesis (2) of the paper. Hypothesis (1), in retrospect, states that liquidity does not have explanatory or predictive power over loan and advances, while hypothesis (2) states that shareholders fund does not have explanatory or predictive power over loan and advances.
Conclusion and Recommendations
Based on the evident result from hypothesis (1), it can be conceived that the amount of loan and advances to be dished out in form of equity or credit financing by BOI is dependent solely on the availability of liquidity. By extension, the development impact of development banks in Nigeria is the function of their liquidity levels. In other words, the higher the quantum of liquidity available in these banks, the more the opportunities for lending for valuable projects. The evident result is in line with the assertions in the early literature on corporate liquidity in which Keynes (1936), pointed out that a liquid balance sheet may enable the firm to undertake valuable projects when they arise. The result from hypothesis (2) tested is conceivably indicating that banks (DBs inclusive) hoard liquidity (probably to strengthen their capital base) during period of economic down turn, when lending opportunities may not relatively be rosy.
The paper, having revealed that liquidity is a strong determinant of BOI loan and advances, recommends, in pursuant to the above, the need for DBs generally, to maintain constant liquidity planning to keep abreast of the societal credit needs in the form of loan and advances. The DBs should maintain a relatively large investment in current assets to avoid the difficulty of paying claim of creditors and meeting the development needs. Also, DBs should avoid cost associated with maintaining liquidity position because high liquidity means investment in either low or zero earning assets. Finally, the paper, having established a significant negative connecting link between shareholders fund and loan and advances, recommends the need for the bank to continually reduce the allocated amounts to shareholders fund in the form of reserves to enable it improve on development financing activities.
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THE IMPACT OF E-COMMERCE ON NIGERIAN MARKETING SYSTEM
Ruth A. ANDAH
Mrs. Andah is a Lecturer at the Department of Business Administration Nasarawa State University, Keffi.
Abstract
E-commerce is such a new phenomenon that little research has addressed the effects it has on relationships in marketing. The emergence of e-commerce (electronic commerce) and the impact of this new technological innovation has changed the approach to business, transactions and processes. A number of e-commerce adoption definitions appear in the literature which simply refers to the process of conducting business online, spanning both Business-to-Business (B2B) and Business-to-Consumer (B2C) markets to reach global players, gaining market share for competitive advantage, utilizing telecommunication networks. However, a number of unanswered questions have arisen about the use and adoption of e-commerce such as; legal matters, political issues, telecommunication regulatory issues, security and trust aspects, customer relations and product selection. These are essential elements needed to trade online successfully. In addition, some uncertainties have emerged that may impact the successful implementation of e-commerce initiatives such as; e-loyalty, marketing, customer experience, bandwidth issues and online customer maintenance. This study therefore presents the issues to the adoption of e-commerce, which is written from the collection of available literature and a discussion from the results of a survey conducted in the study. The methodology and current trends found in the area of research are also discussed broadly.
Keywords: e-commerce, e-business, online, e-loyalty, Business-to-Business.
Introduction
Many issues emanating from the adoption of e-commerce have been reported in literature. Firstly, the adoption is not merely a matter of a business signing up with an Internet Service Provider (ISP). Secondly, there are potential barriers, risks, security fraud and marketing issues associated with e-commerce adoption. Thirdly, technical, business and external factors are ever present including cultural, political, legislative and environmental issues to contend with (Reichheld & Schefter, 2000; Hoffman & Novak, 2000; Klopper, 2002; Mohammed, Fisher, Jaworski & Cahill, 2002; Boschma & Weltevreden, 2005; Braga, 2005). These potential pitfalls could be mitigated by providing guidelines to reduce the risk of failure at the outset (or even after adoption) of e-commerce initiatives. Developing countries, including those in Africa, have become detached from the global economy mainly due to a lack of sustainable and appropriate ICT strategies and poor telecommunications infrastructure. In this paper an e-commerce adoption working definition is developed from literature, culminating in presenting ten e-commerce adoption factors, verified by five case studies in South Africa.
A significant opportunity and challenge for businesses in the next few years will be how to deploy e-commerce initiatives. E-commerce activity improves value chain integration, enables customisation and also provides smaller companies opportunity to reach customers worldwide (Da Silveira, 2003). An increasing number of businesses are using the Internet to trade online but not many are generating profits. This poses management with challenges to identify where e-commerce profitability lies, how it is reached and how it could be sustained (Hoque, 2000). Despite these challenges Jones, Hecker and Holland (2003) argue that there is limited research available on how to effectively, implement e-commerce into SMME operations. Many of these challenges could either be resolved, or at least be identified, in order to follow the most appropriate e-commerce adoption path. This needs to be done at the outset of the e-commerce adoption initiatives. Although a number of local and International studies report on e-commerce adoption paths, these do not provide clear guidelines to determine how SMMEs should progress or move into e-commerce. Several e-commerce definitions exist but no consensus has been reached on the extent or essential parameters (Kowtha & Choon, 2001).
In this paper, e-commerce is referred to as digitally enabled commercial transactions between organisations and individuals. Commercial transactions involve the exchange of value, for example, funds across organisational or individual boundaries in return for products and services (Laudon & Traver, 2003).
The Concept of E-commerce
Electronic commerce (e-commerce) has been defined by many researchers in recent times coming up with different definitions. Cohen and Levinthal (1990) defines it as the process of buying and selling goods and services electronically involving transactions using the Internet, networks, and other digital technologies, Charles (1998:16) defines e-commerce as “the delivering of information, products/services, or payment via telephone lines, computer networks, or any other means”, (Shikhar, 1998:4) in a summary concludes that “e-commerce can be defined as technology-mediated exchanges between parties (individuals or organizations) as well as the electronically based intra- or inter-organizational activities that facilitates such exchanges”. For the purpose of this study, e-commerce is simply defined as doing business electronically (Grove and Raymond, 1997). This confirms that e-commerce entails the electronic interactions that enable and facilitates the exchange of goods and services.
With different organisational adoption mode of e-commerce to suit its business needs, e- commerce can then be classified as follows; Business-to-Business (B2B) which targets sales primarily among other businesses, Business-to-Customer (B2C) which means sales primarily targeting individual customers/consumers, Customer-to-Customer (C2C) this means primarily offering of goods and services to assist consumers to interact, Business-to-Government (B2G) involves organisations’ selling goods and services to local and national government and the Hybrid which combines the B2B and B2C models (Davis and Meyer, 1998).
E-commerce is the buying and selling of information, products, and services over the Internet. E-commerce includes several activities: trading of goods and services, delivery of content online, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, online sourcing, public procurement, direct consumer marketing, and after-sales services (Howard, 2008). E-commerce falls under four main categories: business-to-business (B2B), business-to-government (B2G), business-to-consumer (B2C), and consumer-to-consumer (C2C). e-commerce applications were first developed in the 1970s. Innovations such as the Electronic File Transfer characterized E-commerce at the time (Uzoka and Seleka, 2004). EFT was used to route funds from one firm to another. Following EFT was the Electronic Data Interexchange (EDI). Modern E-commerce actually began with the commercialization of the Internet and the World Wide in the early 1990s. Since then, it has been a revolutionary phenomenon in the global economy. E-commerce has replaced the traditional form of business-to-consumer phenomenon which involved the buyer, seller, retail shops, catalogues, etc. Its main functions include process management, service management, communication and transportation of products and services (Howard, 2008).
E-commerce and E-business (a newer term) have been used interchangeably by individuals whenever they refer to E-commerce transaction. As Howard (2008) define it, E-business refers to a broader definition of EC, not just the buying and selling of goods and services but also servicing customers, collaborating with business partners, conducting e-learning and conducting electronic transactions within an organization. Depending on the degree of digitization, E-commerce can take several forms in terms of the product or service being sold, the processes, and the delivery method. Products or services may be digital or physical. Whichever way the product or service is processed and delivered determines the type of E-commerce. A firm that is purely physical is referred to as a brick-and-mortar firm. A firm that engages solely in E-commerce is known as a virtual or pure-play firm. Firms that use E-commerce as a separate marketing channel are referred to as click-and-mortar firms (Webwire, 2007). As mentioned above, the success of E-commerce is dependent upon access to the Internet. Access to the Internet has been a major topic in discourses involving ICT penetration in developing countries. Since its advent and advancements in other related technologies, the Internet has experienced significant growth. Developing countries which had in previous years not been able to access the Internet are now able to do so. According to the 2009 UNCTAD report, there has been an increase in access to the Internet since 2003. This increase is a result of achievements that have been made in the areas of fixed and mobile telephony, Internet and broadband technologies. The report indicates that despite the slight decline in fixed telephone subscriptions mobile and (to a lesser extent) Internet usage continue to expand rapidly in most parts of the world. But it further indicated that despite the progress that has been made in global access to the Internet, there is a widening gap between high income and low income countries in the area of broadband connectivity (Lutz, 1998).
Duncan and Moriarty (1998) discuss the relationship between the notions of exchange, communication and technology setting the stage for more detailed investigation in the future. Earlier work (Larson 1994) indicated that there was a strong relationship between information flow and business performance. When this work is held up beside the recent trend toward electronic commerce, it begs the question of the impact of WWW on communications. If increased communication sparks increased performance, then a communication revolution should revolutionize performance. Interestingly enough, there are also counter arguments to the likely impact of the WWW on performance. (Dawes, Lee and Dowling 1998) suggests that information will have an impact on performance only when there is a differential in the amount of information available to various firms. This implies that the WWW might well be a zero sum game.
However, others (e.g., Lilien and Rangaswamy, 1998) suggest that any increase in information, and more importantly, information use, will result in a net gain of overall efficiency allowing all participants to prosper. Clearly there is confusion as to the impact of information on businesses. To make matters worse, the type of industrial purchase is also likely to moderate the informational impact with Duncan and Moriarty (1998) suggesting that technology based information improvements would help mainly transactional purchases. Specifically, Electronic Data Interchange systems have three immediate effects on the performance of a business: (1) faster transmission (2) greater accuracy of data interchange (3) more complete information about the transactions (Hamill, 1997).
Characteristics of E-commerce
The advance of e-commerce provides it with the suitability for business fostering and value creation, described by Day (2000) as the backbone for business where transactions happens instantly over communication medium without paperwork. There are some unique features of e-commerce technology that enhance companies and transform the traditional way of doing business and they are: ubiquity, global reach, universal Standard, richness, interactivity, information density and personality/customization (Dolber, Cheema and Sharrand, 1998).
Contribution of E-commerce
“E-commerce” consists of the buying, selling, marketing, and servicing of products or services over computer networks. The World Trade Organization (ILO, 2000) defines it as the production, advertising, sale and distribution of products via telecommunications. An alternative definition suggests that e-commerce is the conduct of business commercial transactions and management through electronic methods, such as electronic data interchange and automated data collection systems. Electronic commerce may also involve the electronic payments and transfer of information between businesses. Electronic commerce looms large worldwide, and has transformed trade and industry in an unprecedented manner. Its potential is huge and its impact is expected to go far beyond commerce to affect the lives of millions of consumers, workers and producers. As it will continue to affect the economic relations between and within countries and companies it is considered as a key tool for business transaction and development. This is why it is important to have a basic understanding and appreciation of its potential, the framework for its operation and the possible impact it could have on the economy, in general and trade, and firms in particular.
The potential benefits of e-commerce include online communication integrated with information systems of business partners, which may lead to customized products and services, a more diversified regional or global market; better understanding of customer needs; accurate real-time information exchange; and, cost-efficient productivity. E-commerce influences the supply chain systems in various ways. It can be used as a fast and efficient means of communication between companies in the whole value chain. It facilitates customer orders, order confirmation, transport booking and invoicing. The same applies to planning information, sales forecasts, production plans, up-to-date sales figures, and stock levels (Skjoett-Larsen, 2000).
Lucking-Reiley and Spulber (2000) suggest that expectations about productivity gains from e-commerce can be usefully divided into four areas: (i) possible efficiencies from automation of transactions; (ii) potential economic advantages of new market intermediaries; (iii) consolidation of demand and supply through organized exchanges; and (iv) changes in vertical integration of companies.
On the first area, e-commerce enhances supply chain efficiency by providing real-time information regarding to product availability, inventory levels, shipment status, and production requirements. It may have a vast potential to facilitate collaborative planning among supply chain partners by sharing information on demand forecasts and production schedules that dictate supply chain activities. E-commerce also helps achieve efficiency in communicating the needs of the manufacturers' production lines to the suppliers of component parts. On the second area, the power of e-commerce is that it allows a manufacturer to reduce costs, and more importantly, gathers information from all sectors of the chain to exploit growth opportunities (Keeffe, 2001). It brings about a number of benefits to the industry, including improved manufacturing supply chain, increased productivity, improved product quality, enhanced customer service, and a movement towards lower inventory requirements as manufacturers moved towards just-in-time production. Through this industry cooperation, individual companies are placed in a better position to compete for regional or overseas contracts to supply parts to other than their local customers, thus gaining a competitive advantage directly from the adoption of e-commerce.
On the third area, e-commerce effectively links customer demand information to upstream supply chain functions such as manufacturing, distribution and sourcing and subsequently facilitates demand-driven supply chain operations in the shifting environment from mass production to mass customization. In Africa in general and in Nigeria in particular, the adoption of electronic commerce represents an opportunity for SMEs to compensate for their inherent weaknesses in areas such as: access to new markets and information gathering and disseminating on a regional scale. There is therefore a strong rationale for West African governments and institutions to address the issues that promote and assist SMEs to embrace and use electronic commerce in their efforts to intensify business transactions in general and intra-West African trade in particular.
As a new channel for business transactions within West Africa e-commerce will contribute to new sources of revenue and opportunities for manufacturers. It offers direct links between a manufacturer, its supplier and its customer, and supports business transactions, processes and information exchange. It enables a manufacturer to bypass other middlemen and shorten the length of distribution channel. Another prominent feature of e-commerce in West Africa will be to provide a channel to develop new products and services for both existing and new customers. This in turn may allow him to move away from a production-oriented culture to customer-oriented ones. Such focus may remove the need for a manufacturer to hold a large stock of finished goods, thus avoiding the problem of being left with obsolete stock in an environment of fast-changing consumer products.
In addition to the internet, other electronic technologies, namely credit cards, automatic teller machines, telephone banking, electronic data interchange (EDI), are also forms of electronic commerce, and all will change the West African market in sometimes radical ways. However, the e-commerce revolution is dependent on several key prerequisites including the availability of the supporting ICT and a legal and regulatory framework.
Research Methodology
Qualitative analysis using in-depth interviews and double sampling techniques was used to gather information to determine the impact of e-commerce on Nigerian marketing system. To determine this, a period of three months was applied, from June to August 2010. A list of businesses registered with the Nigeria Chamber of Commerce and Industry’s (Chamber) website was downloaded and stored in a Microsoft Word document. There were approximately 1000 companies that had websites. The next step was to find the Universal Resource Locator (URL) of each business to determine which of these had an active e-commerce website. Not all websites could be viewed as some websites could not be accessed. Reasons for failure ranged from File Server error, Unified Resource Locator not found, suspended websites, gateway timeouts or permission was required to access the website. The companies with more than 250 employees were deleted from the sample as well as websites with domains for sale and websites that loaded incorrect company profiles. The analysis resulted in a list of SMEs selling online consisting of a sample size of 38 businesses selling online, spread across 14 different Chamber’s business sectors. In some cases, only one online business was found in a sector. It would have been possible to select one business from each sector, but for richness in data analysis that allows comparison two industry sectors were selected for the study.
The industries selected for analysis were the Tourism industry and Information and Communication Technology (ICT) sectors respectively. The tourism industry was selected on the basis that the tourism industry historically has been an early adopter of technology supporting inherent features making it suitable for e-commerce adoption (Wynne, Berthon,Pitt, Ewing & Napoli, 2001). In contrast, the ICT sector was selected as both Poon and Swartman (1999) and Al-Qirim and Corbitt (2002) found that IT related businesses were more likely to adopt e-commerce than businesses in other sectors. From these industries, SMEs were selected for in-depth interviews from sample. The analysis would later reveal the path each SME followed when adopting e-commerce, why they choose this approach and the benefits these companies were realizing from adopting e-commerce. The selected SMEs owners or managers in the two industries were contacted and after numerous attempts, five SMEs agreed to participate in the research study.
E-commerce Trends in Nigeria
Nigeria, the main country of study of this research, is situated in the Western part of Africa neighboured by Niger Republic, The Republic of Benin, Chad and Cameroun. The country boasts of a vibrant and growing economy based on petroleum crude oil, with most incomes from agriculture and various forms of manufacturing (www.nigeria.com). Internet usage in the country is still at a very low stage and therefore e-commerce is still at a very infant stage but researchers state that there is an increased awareness and the benefits of e-commerce in the country (Flint, 1997). Cyber cafe was a strange word in the country in last 10 years, today cyber cafes exist in virtually every neighbourhood especially in the urban centers and gradually taking a turn in the rural environment this is because cost of ICT is still relatively high for most individuals and firms (Flint, 1997), the cyber cafes has thus significantly improved accessibility to the Internet in Nigeria.
In the telecommunication sector, a proper adoption of e-commerce over the past five years has also helped new ventures with offering telephone sales and services. The country has moved on from the telecommunication state where there were only a few dial-up e-mail providers and Internet service providers (ISPs) and when Nigerian Telecommunications Limited (NITEL) was the only Telecommunications operator, these days were characterized by slow Internet connections, poor electricity service, lack of infrastructure and an unprogressive monopoly in the sector (Ganessan, 1994). Today, Nigeria has been ranked as the fastest growing Telecommunications market according to a report by Business day newspapers, 2005.
In another address, the Minister of Communications said that “the number of fixed lines which was about 700,000 in 2002 was doubled by the end of 2005, while the number of Mobile lines had risen from about 1.56 million in 2002 to the present figure of about 20 million and still counting. It is no wonder then that the Nigerian Mobile market has been rated as one of the fastest growing in the world and it is projected that by the year 2010 it will be Africa’s biggest mobile market”. Another area where e-commerce has had a boom in Nigeria is the banking sector, At present, the situation shows that there is a significant improvement of e-commerce in this sector 90 percent of the banks in the country now offer different forms of electronic banking services like telephone banking, ATM and electronic funds transfer (Glazer, 1991). Furthermore, Ganessan (1994) confirms that online, real-time banking systems have now become common as customers are offered the flexibility of operating an account in any branch of their bank’s network. The online service lets customers’ conduct a variety of banking activities in any location of a particular bank.
SMEs which are governed by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) Act of 2003 to help in promoting and the development of Micro, Small and Medium Enterprises (MSME) sector of the Nigerian Economy represents the interests of these SMEs operating within the economy. They are believed to be vital to the contribution of the nation’s economic growth as over 90 percent of companies in Nigeria are classified as Small Medium Enterprises (Hamill, 1997).
Furthermore, with about 60 per cent of the workforce in Nigeria employed in this sub- sector, the Federal Government of Nigeria appreciates the potential contributions of SMEs to the overall task of accelerating its job creation, economic empowerment and poverty alleviation programmes. Miles and Huberman (1994) confirm that the largest investment on SMEs has been in the ICT adoption areas to maximize its benefits; the writer described the popular Lagos Computer Village as a manifestation of the growing ICT on SMEs in Nigeria. But amidst of all these government regulations and checks to the proper e-commerce adoption on SMEs in the country, a successful and proper adoption is still being hindered by factors such as network reliability, authenticity, security, lack of government support, privacy and confidentiality, cost of implementation and accessibility (Moorthy, Ratchford and Talukdar, 1997).
Conclusion and Recommendations
Although E-commerce has been well established in the more developed and industrialized parts of the world, the same is not true for developing countries in general. Nigeria, which is one of the world’s 48 least developed countries according to a United Nations Development Program and the World Bank report, is yet to adopt E-commerce. The slow pace of ICT penetration in Liberia has been a major hindrance to E-commerce adoption. Moreover, the Internet savvy portion of the population are primarily young unemployed men and women who cannot afford to make purchases or own a VISA card needed for an E-commerce transaction. Only an optimistic view of the country’s economic and political future would subsume these young people as potential customers.
There are other challenges that need to be addressed. Taxation, security, usability in a highly illiterate society and access the Internet are but few of the many challenges that still exist. Payment methods in most parts of the country are still largely being done by cash. Another challenge that Nigeria faces is the dilapidated roads which connect various parts of the country. Delivering goods to rural areas will present a serious problem which may hinder an adoption to E-commerce. Three quintessential components for E-commerce were identified in this paper; a catalog/website which lists products and services that are being sold; a shopping cart which allows customers to select the products they want to buy; and a payment mechanism that allows buyers to finalize transaction by making payment online. All of these components parallel those advocated by Abdullah (2009).
Furthermore, an E-commerce work-flow was explained and illustrated pointing out transactional operations of ETradeLiberia.Com. In addition to an Internet-oriented E-commerce platform, a mobile commerce (M-commerce) option was incorporated and illustrated, based on the study done by Lai, (2008). The study which indicated that mobile technologies often outpace Internet technologies in conflict environments such as Nigeria parallels the argument made by Howard (2008), regarding sophistication of the mobile sector. Both arguments certainly and remotely illustrate that the success of E-commerce in developing countries cannot be achieved in the absence of M-commerce.
The results from this initiative based on reviews by participants clearly indicate that there is a need for E-commerce adoption in Nigeria to enhance its economic recovery process. Both sellers and buyers, the results indicate, share consensus on the impact that an E-commerce adoption will have on Nigerians living in Nigeria as well as those in the Diaspora.
There are several challenges that need to be addressed before a fully functional and globally competitive E-commerce platform is adopted: political stability, decreased rate of illiteracy, better payment mechanisms; good infrastructure, and above all, low cost access to a fiber optic cable for high-speed connection to the global market. This paper has identified that Liberia can in fact adopt E-commerce as a national development initiative. There is, however, a need for more research in other areas including cyber-security, cyber-awareness, online transactions, and so on, to further implement an improved and advanced E-commerce platform that will benefit the country as well as other developing countries.
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GLOBAL FINANCIAL CRISIS AND STAKEHOLDERS’ WEALTH MAXIMIZATION IN THE NIGERIA BANKING INDUSTRY
A.D. WIRNKAR
Wirnkar is a Lecturer at the Department of Accounting, Gombe State University, Gombe.
Abstract
A scrutiny on the reform policy tagged, “the 2004 consolidation programme in the Nigeria banking industry”, and the impact of the global financial meltdown crisis on its intended benefits is necessary for planning and decision making. It is common knowledge that the genesis and fast sweeping of the global financial crisis has left behind far alarming discontentment ranging from banks failure to labour retrenchment among others. One of the objectives of this paper is to scrutinize through the 2004 Reform Programme in the Nigeria Banking Industry and the Financial Meltdown Era; their impact on stakeholders’ wealth maximization of Nigeria banks and the employment generation of banks. Descriptive sensitivity analysis using sequence charts on a time series basis was used along with inferential statistics of correlation computed via SPSS software. We found that the programme yielded positively in the gross wealth creation of banks but that this gross wealth realized was not or is not being judiciously appropriated among the various stakeholders. That bank’ employees are the highest beneficiaries of the gross wealth creation of banks while shareholders, the government and the employment generation of banks in that order are left to the doldrums. That the advent of the global financial crisis seems not to have any negative effect on the operating activities of banks in Nigeria as captured by the accounting data. A call for additional regulation is made whereby; salaries of banks’ employees will be harmonized (as is the case with the academic staff of universities); comparatively fixed by the NLC and approved by the CBN. This will bring more sanity into the generality of the economy, check meet inflation, brain drain and make the academic domain much more competitive for the enhancement of research and knowledge.
Keywords: consolidation, global financial meltdown, creative accounting, misinformation, negligence, irresponsibility, value added.
Introduction
Anita (2002:2) opines that banks are troubled by a fundamental conflict: the more generously a bank provides money in the lending business, the more problems it creates for its partners in the deposit-taking business- shareholders, savers and, last but not the least, tax payers who may have to help prevent a bank from collapsing. Still on the same page, he enumerates some importance of the banking industry in the Swiss economy to include: banks generate the greatest value added; they provide more than 120,000 people with jobs; they manage client assets to the value of 3,400 billion francs; they are significant taxpayers; and they provide the real economy at a price with money to finance its development.
The 2004 Reform Program for banks operating in Nigeria was received with mixed feelings immediately after the conclusion in December 2005 of the 2004 consolidation programme in the Nigeria banking industry. According to the then Central Bank of Nigeria governor, Soludo (2004), “…the ultimate beneficiaries of this policy shift would be the Nigerian economy; the ordinary men and women who can put their deposits in the banks and have a restful sleep; the entrepreneurial Nigerians who can now have stronger financial system to finance their businesses; and Nigerian economy which will benefit from internationally connected and competitive banks that would also mobilize international capital for Nigerian development”.
Notwithstanding all the above optimism, there was outcry and wailing by depositors in the failed banks, as not all deposits in the failed banks were insured and recourse to the Nigerian Deposit Insurance Corporation (NDIC) void. It’s pertinent to note that the then governor of the CBN’s comments transcend beyond looking at the performance of consolidated banks from mere improved interest to shareholders and directors but to a larger interest of all stakeholders in the banking industry.
While believing that the inception of the global financial crisis in the summer of 2007 might have truncated the expected benefits from the 2004 Reform Programme, it is worth ascertaining the points of deflection if any in all the key variables thereby ascertaining the impact of this canca-finance-worm that has led to the collapse of many banks and labour retrenchment in banks and other establishments across the globe.
To examine the attainment or otherwise of the expected benefits from this reform programme as expressed by Soludo, one must answer the following questions: (1) what has been the state of the gross wealth creation of banks after the consolidation programme and at the inception of the global financial crisis in the summer of 2007? (2) What has been the post consolidation benefits accruing to the value added appropriation stakeholders of Nigerian banks and the employment generation by banks?
This paper intends to provide answers to the questions as raised above. To do this, we compute and provide a sequence chart on a time series basis, the computation of correlation coefficients of all variables vis-à-vis the gross wealth creation of banks and their significance. The following group of hypothesis will be tested:
H1: There is a significant relationship between wealth creation by a bank and benefits accruing to its stakeholders.
The paper is divided into five (5) sections. Section one is introduction, while theoretical and empirical issues are covered in section two. Section three and four are methodology and results and discussion of findings, and lastly, section five, relates to policy issues.
Theoretical and Empirical Issues
With a minimum capital base of twenty-five billion naira (N25, 000,000,000) and a deadline of December 2005, the 2004 Reform Program as at January 2006, resulted in the shrinkage of the number of banks from 89 to 25 through merger/acquisition involving 76 banks with 13 banks to be liquidated. The increasing cost of IT and other infrastructure, banks comparison with other jurisdictions, inflation and increasing interest rates, depreciation of the national currency, the naira, strengthening the operational capacity of deposit money banks, minimizing the risk of distress among other factors have gingered the desire to occasionally reposition the Nigeria banking industry. It is pertinent to note that between the periods 1994 to 2005, the CBN revoked 49 banking licenses. 36 banking licenses were revoked during 1994-2004 while 13 licenses were revoked at the end of the consolidation exercise as at 31st December 2005.
Awoniyi (2009:1) notes, “the healthiness experienced in the nation’s banking institution ever since the Central Bank of Nigeria (CBN) implemented a banking consolidation programme some four years ago, has given Nigeria’s bank a ‘high-tech’ foundation in the advent of the global economic meltdown”. While responding to questions from journalists on the effect of the global financial meltdown on the Nigerian Banks, the NDIC Boss, Ogunleye (2009:1), notes that Nigerian banks are largely domestic banks that mobilize their deposits and render their services locally. In his words, “the only area we can directly be affected by the global financial crisis has to do with their ability to have access to credits because most of the foreign institutions have their own difficulties now. And when you have difficulties you want to restructure yourselve and that’s not the time to extend facilities to others.” He further stated, “apart from that to the extent that a lot of their customers are borrowers and also in the other sectors of the economy and the falling oil price, certainly, there is weak demand that will affect the productive capacity of the various businesses or enterprises that are taking loans from banks. That if there is no demand for their goods and services, the ability to meet obligations by these organizations will become weakened. So, by that way they may have difficulties in trying to recall loans granted, but that doesn’t mean that as we speak they have been adversely affected, but we cannot pretend that we don’t have challenges. That is why we are taking all steps to ensure that they are well positioned to take all challenges.
While commenting on the state of the U.S
[email protected], President Obama says it is irresponsibility and shameful for Wall Street bankers to be paid huge bonuses at a time when the American public is dealing with economic hardship. The President reacted harshly to reports that corporate employees got paid more than $18 billion in bonuses last year. Obama said, “That is the height of irresponsibility. It is shameful. It is outrageous”.
Zainab (2007:87) assessed the impact of the 2005 consolidation programme on financing SMEs and found that entrepreneurs could not source the much needed finances for their operations. She found among many obstacles to this source of finance to include collateral securities, business registration certificates and certified statement of affairs. And that the majority of enterprises (72.0%) depend on their proprietors’ personal savings for their initial capital with a negligible 0.42% finance obtained from commercial bank loans.
In a press conference, the then governor of Central Bank of Nigeria (CBN), Soludo (2006:3) outlines some of the outcomes of the July 2004 consolidation exercise for banks operating in Nigeria as follows:
“...the liquidity engendered by the inflow of funds into the banks induced interest rate to fall drastically while an unprecedented 40% increase has been recorded in lending to the real sector. With higher single obligor limit, our banks now have greater potential to finance big ticket transactions. Already, more banks now have access to credit lines from foreign banks (one recently received $250 million from two foreign banks-this is unprecedented). Ownership of the banks has been diluted. This will in no small way tame the monster of insider and corporate governance abuse”.
Wirnkar and Tanko (2007:40) appraised post consolidation efficiency of banks in Nigeria via a Data Envelopment Analysis (DEA) approach and found a 1.77% marginal increase in banks’ efficiency using quantitative secondary data over the study period.
Gregorian and Manole (2002:18) in search for the determinants of commercial banks’ performance in fourteen transition economies using the value added approach of input and output definition of the services performed by banks via Data Envelopment Analysis (DEA) approach, found out that well capitalized banks are ranked higher in terms of their ability to collect deposits than their poorly capitalized counter parts.
While studying the efficiency of financial institutions, Berger and Humphery (1997:46) survey 130 efficiency studies that apply frontier efficiency analysis to financial institutions in 21 countries and found among other findings that; some consolidations improve the cost efficiency, whereas others worsen the performance of the combined institution relative to the separate institutions. According to them, profit efficiency may improve with mergers and acquisitions due to alternating output mix towards more profitable products.
In the words of Anyanwu (2000:129-130), high productivity in the Nigeria manufacturing sector has been constrained by many factors which include the following: Low level of technology, low level of capacity utilization rate, low investments, high cost of production, inflation and poor performing infrastructures. While elaborating on low investments in the Nigerian manufacturing sub sector of the economy, Anyanwu noted that lack of funds has made it difficult for firms to make investments in modern machines, information technology and human resources development which are critical in reducing production costs, raising productivity and improving competition. He further argued that low investments have been traced largely to banks’ unwillingness to make credits available to manufacturers, owing partly to the miss-match between the short-term nature of banks’ funds and the medium to long-term nature of funds needed by industries. In addition, that banks perceive manufacturing as a high risk venture in the Nigerian environment, hence they prefer to lend to low-risk ventures, such as commerce, in which the returns are always very high. Even when credit is available, high lending rates, which were over 40 percent at a time, made it unattractive; more so when returns on investments in the sub-sector has been below 10 percent on the average.
Umar (2007:72) opines that one of the objectives of the consolidation exercise is that Nigerian banks would have the capacity (post consolidation) to finance sectors of the national economy that they were incapable of due to poor capital and therefore capacity. He further states that such sectors in particular, were the petroleum, agricultural and the manufacturing sectors. That evidence from the CBN and NDIC suggest growth in the volume of credit from consolidated banks to the domestic economy. According to him, out of the core private sector credit granted amounting to N2, 289.2 billion, only 17.3% was allocated to the priority sector, 82.7% went to the non priority sector. Of this 17.3%, agriculture had 4.4%, solid minerals 10.5%, exports 0.6% and manufacturing 1.8%. In his words, Umar (2007:72) concludes, “that must be an outcome far below what the CBN wanted from the consolidation exercise”.
According to Soludo (2008) in Umar (2007), total credit to SMEs in 2004 was some N26.31 billion and had progressively risen to N203.58 billion by 2007. And that other salient benefits from the consolidation programme notwithstanding, is the position rating of Nigerian banks in Africa and in the World, increase in branches and improvement in the attractiveness of Nigerian banks to investors. And that foreign inflow which stood at US$433 million in 2003 grew to some US$9.6 billion by end of 2007.
Methodology
We compute and provide a sequence chart on a time series basis, the computation of correlation coefficients of all variables vis-à-vis the gross wealth creation of banks and their significance. These variables include: benefits accruing to the employees, shareholders, the government, the business entity (bank) and the employment generation of banks. All computations are via the Statistical Package for Social Sciences (SPSS), version 16. The population of this work is all the 24 deposit money banks in the Nigeria banking industry. The purposive or judgmental sampling technique is used to select a sample of 4 banks based on the availability of comprehensive data for the study period (2002 to 2009).
Table 1:DATA PRESENTATION AND ANALYSIS
COMPUTATION OF AVERAGES OF KEY VARIABLES
Year
2002
N’M
2003
N’M
2004
N’M
2005
N’M
2006
N’M
2007
N’M
2008
N’M
2009
N’M
AV.TVA
11521
15519
14144
20795
30268
37184
69785
101465
AV.TBE
5440
6254
9687
8900
13512
17281
27560
38948
AV.TBPF
1844
2448
3886
4189
5715
3217
5467
1078
AV.TBG
1400
1923
2077
2127
2238
4139
5593
3802
AV.TBBIX
2837
4621
5394
6956
7294
10344
16454
43511
AV.EMP.G
4799
4765
5986
4749
5484
6552
7518
9993
Source: Researcher’s computation
AV.TVA= Average of total wealth creation of banks
AV.TBE= Average of total benefits to employees of banks
AV.TBPF= Average of total benefits to shareholders of banks
AV.TBG= Average of total benefits to the government from tax payments by banks
AV.TBBIX= Average of total benefits accruing to the business (earnings retention for expansion)
AV.EMP.G= Average of total employment generation by banks
Descriptive Statistics
Source: Researcher’s computation using SPSS (See table 1 and appendix a).
The performance of banks as measured by the gross wealth creation of banks shows impressive success the years after the consolidation programme in 2005. This is evidenced at a glance from the sequence chart. Wealth creation of banks increased slowly from 2002 to 2003 and decreased in 2004. Thereafter, it increased in 2005 and continued to increase at a steeper slope up to 2007. From 2007 to 2009, the increase in the gross wealth creation was impressive as can be visualized from a much steeper slope compared to the preceding years. This is contrary to what one would have expected given the inception of the global financial crisis in the summer of 2007 and thereafter. This in a way confirms the words of Ogunleye (2009:1) that despite the emergence and fast sleeping of the global financial crisis, “indicators available to us have not shown that any of the Nigerian banks is weak.”
The dynamism of benefits to bank’s employees flowed perfectly consistent with the flow in the gross wealth creation of banks except for some mild differences in 2004 and 2005. A slight fall in the gross wealth creation of banks in 2004 did not affect the benefit accruing to employees as instead of a corresponding fall, it rose.
Surprisingly, benefits to shareholders undulated throughout the study period and started falling in 2008 to 2009. This shows that shareholders have not benefited at all from the consolidation programme. Compounded to this is a crash in the capital market since early 2007 thus painting this period the “dark era” for shareholders of Nigeria banks.
The movement of the benefits to the government undulated throughout the period making one to doubt if at all the government benefited from this reform programme.
Aside from benefits to the employees, the benefit to the business (retained wealth for expansion) moved perfectly with the gross wealth creation of banks.
Despite a perfect agreement between the gross wealth creation of banks and the benefits accruing to the employees, employment generation of banks is far at the doldrums. The size of work force is almost flat year in- year-out but with continuous increase in salaries and other benefits.INFERENTIAL STATISTICS: CORRELATION AND TEST OF SIGNIFICANCE
Correlations
Average of total wealth creation by banks
Average of total benefit to employees
Average of total benefit to providers of funds
Average of total benefit to the government
Average of total benefit to the business
Average of employment generation by banks
Average of total wealth creation by banks
Pearson Correlation
1
.994**
-.166
.749*
.948**
.956**
Sig. (1-tailed)
.000
.347
.016
.000
.000
N
8
8
8
8
8
8
Average of total benefit to employees
Pearson Correlation
.994**
1
-.135
.770*
.940**
.975**
Sig. (1-tailed)
.000
.375
.013
.000
.000
N
8
8
8
8
8
8
Average of total benefit to providers of funds
Pearson Correlation
-.166
-.135
1
.237
-.392
-.264
Sig. (1-tailed)
.347
.375
.286
.168
.264
N
8
8
8
8
8
8
Average of total benefit to the government
Pearson Correlation
.749*
.770*
.237
1
.534
.695*
Sig. (1-tailed)
.016
.013
.286
.087
.028
N
8
8
8
8
8
8
Average of total benefit to the business
Pearson Correlation
.948**
.940**
-.392
.534
1
.949**
Sig. (1-tailed)
.000
.000
.168
.087
.000
N
8
8
8
8
8
8
Average of employment generation by banks
Pearson Correlation
.956**
.975**
-.264
.695*
.949**
1
Sig. (1-tailed)
.000
.000
.264
.028
.000
N
8
8
8
8
8
8
**. Correlation is significant at the 0.01 level (1-tailed).
*. Correlation is significant at the 0.05 level (1-tailed).
Source: Researcher’s computation (See Table 1)
There is a strong and significant association at 1% level between the gross wealth creation of banks and the benefits accruing to the work force and the business. This shows that banks are very concerned about the welfare of the workforce and the expansion of the business for continuity.
We saw a negative and significant association between the gross wealth creation of banks and the benefits accruing to shareholders.
Finally, there is a positive but no significant association between the gross wealth creation of banks and benefits accruing to the government and the employment generation of banks.
Results and Discussions
It is glaring from our findings that bank gross wealth creation serves mainly two purposes: employees and business expansion. These two variables associated perfectly consistent with the gross wealth creation of banks over the study period. One can conclude that rather than what was envisaged by the then governor of the CBN, Soludo, the dividends from the 2004 consolidation programme have only benefited the small size workforce of banks and banks via profit retention for expansion.
It is disheartening to believe that despite the crash in the capital market, banks are not maximizing shareholders wealth in dividend payout. This is evidenced in the negative correlation between the gross wealth creation of banks and the benefits accruing to shareholders throughout the study period.
The positive but no significant association between the gross wealth creation of banks and the payment of tax shows that banks are either evading tax payment or not acting responsibly in discharging governmental social responsibility as one would have expected. Benefits to the government undulated throughout the study period despite continuous and steeper increase in the gross wealth creation of banks. Banks are not providing enough employment to the citizenry as this failed woefully to match with the increase in the gross wealth creation of banks.
Conclusion and Recommendations
This paper scrutinized the 2004 reform programme in the Nigeria banking industry: the intended benefits and the impact of the global financial crisis. We found that the programme yielded positive gross wealth creation of banks but that this gross wealth realized was not or is not being judiciously appropriated among the various stakeholders. That bank’ employees are the highest beneficiaries of the gross wealth creation of banks while shareholders, the government and the employment generation of banks in that order are left to the doldrums. In addition, that the advent of the global financial crisis seem not to have impacted negatively on the operating activities of banks as captured by the accounting data.
Banks all over the world have continued to be bailed out and this is likely going to be the case into the recent future. As such, the salaries of banks workers across board should be fixed and harmonized by labour unions (NLC) as is the case with the academic staff union of universities, and approved by the Central Bank of Nigeria. This will bring more sanity into the generality of the economy, check meet inflation, brain drain and make the academic domain much more competitive for the enhancement of research and knowledge.
Banks should be made to be more responsible to their shareholders in the declaration and payment of dividend. A percentage say 15% of the total gross wealth creation of banks should be paid as dividend. Banks should also provide commensurate number of jobs to the people rather than retaining a few to pay them huge salaries.
Banks should be more responsible in discharging the compulsory responsibility of paying tax rather than evading same. The dynamism in the fluctuation of the benefits accruing to banks stakeholders should be consistent with the fluctuation in the gross wealth creation of banks.
References
Anita F (2002), “The Role of Banks in a National Economy: A Political view, Swiss bank association media seminar, June 25-26, 2002
Anyanwu C.M (2000): Productivity in the Nigerian manufacturing industry.
Berger A, N. and Humphrey D. B (1992): “Efficiency of Financial Institutions: International Survey and Directions for future Research”; European Journal of Operational Research, University of Pennsylvania.
Berger, A. N., and Humphrey, D.B., (1997): Efficiency of Financial Institutions: International Survey and Directions for Future research, European Journal of Operational Research, University of Pennsylvania.
Central Bank of Nigeria: Banking Supervision Annual Report 2005
Grigorian and Manole (2002); “Determinants of commercial banks performance in transition: An Application of Data Envelopment Analysis” World Bank policy Research Working Paper 2850, June 2002.
Ojunleye G.A (2009), “How Global Financial Meltdown has Affected Nigerian Banks”, @ http://www.ndic-ng.com/pdf/adam.pdf.
Okoye et al (2009): “ Understanding and Explaining the Underpinnings of CreativeAccounting in Nigeria: The Cadbury Evidence”, in Journal of Association of National Accountants of Nigeria, Volume 17, Number 1, Nigerian College of Accountancy, Jos, Nigeria.
Soludo C.C (2006): The outcome of the banking sector recapitalization and the way forward for the under capitalized banks, press conference, CBN, Abuja, 16th January, 2006.
SPSS: Statistical Package for Social Sciences ( version 16)
Umar A.D and Ango (2007): Banks consolidation in Nigeria: An assessment of its intended and unintended consequences in KSU Journal of Management Sciences, Faculty of Social and Management Sciences, Volume 1, Number 3, December, 2007
Wirnkar A.D and Tanko M. (2007) “Post consolidation Appraisal of Commercial Banks’ Efficiency in Nigeria”, In Nigerian Journal of Accorting Research, Number 6, Department of Accounting, A.B.U, Zaria.
Zainab D.(2007): “ The impact of Banks’ consolidation on the Growth and Development of Small Scale Business” in KASU Journal of Management Sciences, Volume 1, Number 3, Faculty of Social and management sciences, Kaduna State University.
Appendix A
THE APPLICATION OF PUBLIC PROCUREMENT PROCESS
TO BUDGET IMPLEMENTATION IN NIGERIA
Zubairu Magaji AZA
Aza is a Lecturer at the Department of Accounting, Nasarawa State University, Keffi.
Abstract
The process of acquisition of goods, services and works project in Nigeria have been criticized by the public in recent years, leading to introduction of due process in the year 200 and the public procurement act in 2007, all aimed at restoring public confidence as well bring out value for public funds being spent. The procurement process has to undergo the procurement cycles, adhere to the principle of competition and the transparency and have a full procurement administration. Budget implementation, in order to ensure that the procurement process is fully utilized should have provision for review, in-year revision, among others. These process is if adequately followed, will yield benefits that includes an established legal and instituted framework, standardization of procedures for procurement in public sectors, promotion of principle competition with a view to obtaining value for money by adopting international best practice in public procurement and award of contracts. If the code of conduct and offences for suppliers among others in the procurement act are properly followed for government procurement during budget implementation, then value for money will be obtained, hence achieve economy, efficiency and effectiveness in public funds management in Nigeria.
Introduction
Procurement is the process of acquisition of goods, services and works project from third parties (including logistical aspects), from initial concept and definition of individual, business or public sector needs through to the end of the useful life of procured asset or service contract.
The public procurement act no 14 of 2007 was established based on wide spread of corruption, whereby no serious attention was paid to public service rule, financial regulation, ethics and norms because of selfish reasons, thus due process was introduced in the public sector activities and the business in the year 2000 to ensure efficiency, accountability. Integrity and transparency in government procurement and financial system.
To ensure that government activities and business are carried out openly, economically, and transparently without favouritism and corruptible tendencies, that to ensure that rule and procedure for procurement are made to be implemented by enforcement, the public procurement Act was enacted. This Act is to ensure that due process is adhere to; that is a mechanism that certifies for public funds to be used only for those projects that have passed the test of proper implementation, packaging and adhere stringently to the international competitive bid approach in the award process.
According to onyekpere (2008), Ekpenkhio (2003) and Ayoola (2008) the following reasons identified as major weakness in the procurement system led to the establishment of the Act:
Lack of modern law on public procurement and permanent oversight and monitoring purchasing entities.
The financial control management Act of 1958 and financial regulation which set basic rules for managing public expenditure have gaps, deficiencies and faulty implementation on existing regulation on procurement.
Inflation and lack of regulation adjustment on the thresholds on approving limits of tender boards, their authorization were being abused which results in abuses-(splitting of contracts).
The proliferation of tender boards which were perceived by the private sector as sources or delays and non transparent.
The customs systems and procedures were cumbersome, thus causes delay in clearing of goods, and hence a source of corruption.
The procurement is often carried out by staff who substantially lack there relevant training.
The Procurement Process
Oguonu (2007) states that the main objective of the government as a purchaser is to obtain high-quality goods and services at a competitive price. Procurement procedures should provide fair opportunity to all bidders, and be designed to get their best value for money and to minimize risks of corruption and patronage. While government procurement is certainly not only possible source of corruption, it is one of the major ones, and vigilance is always necessary to minimize corruption risks, optimize the use of financial resource, and foster the growth of competition. Oguanu (2007) further discussed that procurement have stages.
The procurement cycle includes the following stages:
Identification of user needs and project preparation. For supplies, this identification consists of establishing what user require, specifying of the goods or services to be procured, reviewing whether the needs can be met from available stores, whether they can be aggregated with any other outstanding similar requirement, etc. for construction projects, different variants are reviewed to choose the most-effective and the project execution plan is prepared to include the characteristics of the project. At this stage, the possibility of a public-private partnership should also be reviewed, as well as the appropriate arrangements.
Determination of the procurement procedure. A key step is to determine the procurement procedure (restricted list of vendors, local competitive bidding, or international competitive bidding). For expenditures financed by external sources, procurement procedure must conform to the guidelines established by the external lender or donor. Major multinational trade arrangement like the world Trade Organizational’ Government procurement Agreement also set legal obligation for national procurement systems and practices.
Tendering process (generally preceded by a prequalification procedure, depending on the tendering procedure). For competitive bids, a letter of invitation is sent to tenders. This letter should be specify the characteristics of the project or the goods and services to be supplied, the selection criteria, and the award arrangements, price is an important criterion in awarding contracts, but cannot be sole criterion. In many cases, prices are less important than technical and quality criteria. Choosing systematically the lowest priced bids could lead to buying obsolete or poor quality goods or services. To avoid an excessive bias towards low priced bids, it is often desirable to review the bids in two steps, first on technical grounds, and then on the basis of cost.
Principle of Competition and Transparency
The key principle in procurement is open competition and transparent process. The procurement process should be made open to public scrutiny. The result of bidding must to make public. Competitors’ names, their bid prices, and the name of the successful bidder must be disclosed. Contract awards and overall procurement process must be subjected to scrutiny of the national Assembly and external audit bodies. Written (or computerized) records must be maintained and publicly accessible. These records should show which suppliers were approached, which ones were selected, the reason for procurement decision, details of prices, the reports on the acceptance of work done or the receipt of goods ordered, and comments on the performance of the supplier.(Oqua, 2005)
The legal framework or the code ethics should include standard about procurement. There should be not conflict of interest between official duties and private interest of civil servants. Appropriate levels of financial delegation and proper separation of duties must be established. Rotation of duties is generally needed to avoid risk of collision due to the development of too and cozy relationship between the buyer and the supplier.
In some countries, the government also aim to achieve economic policy objective through its purchasing policy, such standard or innovations, I terms of safety, the environment, or other areas. These criteria should be clearly stated and published. In any case, the procurement procedures should promote competition and ensure equity and integrity.
In some countries, the purchasing function is centralized in a central procurement unit. In principle, a central purchasing unit has the advantage of allowing the government to obtain lower price by grouping its purchases. However, the results may be disappointing because of problem such as slow and bureaucratic response to customers, excessive inventories, losses, pilferage, and slow response to market and technological changes.
It seems preferable to make line ministries fully responsible for their purchases and establish a central public procurement office to supervise and assist in the procurement activities of agencies. Under such arrangement, the central public procurement Office is responsible for developing rules and regulations, creating a government-wide information and publication system, ensuring the government purchasing entities employ trained personnel, developing a training system, and maintaining general supervision of procurement system. In Nigeria, the public procurement bureau has been established, reporting to the council, headed by the president.
Budget Implementation in the Public Sector
According to Robert (1979) and Daniel (1999), budget is used as a device for making and coordinating plans for communicating these plans to those who are responsible for carrying them out by setting standards with which actual performance can be compared. Thus budget can be defined to mean a plan quantified in monetary terms, prepared and approved prior to be define period of time, usual showing planned income to generated and expenditure to be incurred during that period.
Ogbonna (2009), views the budget as a framework through which government provides for the welfare and the security of the people. Wittig (1999) observes that budget implementation should be reviewed periodically to ensure that programs are implemented effectively and to identify any financial or policy slip- ups.
The review of budget execution should cover financial, physical and other performance indicators. Cost increase due to inflation, unexpected difficulties, insufficient initial study of project, and budget overruns must be identified so that adequate counter measures can be prepared. A comprehensive midterm review of the implementation of the budget is needed, while the financial implementation of the budget should be reviewed monthly.
Development budgets are often beset by implementation problem because of insufficient implementation capacities and other factors such as delay in mobilizing external financing, overoptimistic implementation schedule, climatic hazards, or difficulties in importing supplies. Mechanisms for reviewing the most significant or problematic project are needed. These could consist of a regular monthly or quarterly review of project within line ministries and a midyear review involving line ministries and central agencies.
It is difficult to make accurate forecast for the implementation of certain programs or for developments in economic parameters such as inflation, interest rates or exchange rate. some immediate needs that were not foreseen during budget preparation may appear during budget execution. To limit the effects of these problems rules for transfer must be flexible; appropriation for debt service cannot be a spending limit and should be revised according to development in interest rates or the exchange rate.
Contingency reserves may be included in the budget. However their amount must account for only 1-3 percent of the total budget; otherwise, budget execution involve bargaining the uses of reserve and the budget will become an allocation reserves.
Therefore, for changes that alter the composition of the budget or when an overall increase in expenditures is unavoidable, the budget may have been revised.
Mechanism for revision depends on the country, and should be clearly stated in the budget organic law. Some broad principles are desirable. In the budget has been passed by the legislature, revisions should be made by law. Generally, changes in appropriation above a certain percentage of the initial appropriation or changes that affect the total amount of expenditures must be submitted to the legislature for approval. To allow the government to address problem with dispatch, procedure authorizing exceptional expenditure before the parliament approves them can be considered. However, the authority should be regulated and limited, and the executive must be required present a revised budget to the parliament at short notice.
Supplementary estimates should be approved only at a fixed time and the number of in-year revision should be strictly limited (to preferably only one in year budget revision). Some countries present supplementary estimates to parliament on a case-to-case basis, each time the cabinet approves a request from a line ministry, as a result, an excessive number of supplementary estimates are prepared every year.
Such procedures should be avoided. Budget execution is difficult to control when budget is continually being revised. Moreover to supplementary estimate granted to one sector may, all too soon, seem better allocated to a higher priority sector. Preferably, only one budget revision should be made during the fiscal year and requests from line ministries should be reviewed together, not singly.
Benefits accruing to the application of public procurement process to budget implementation are:
There is an established legal and institution framework for public sector procurement/contracts.
There is clear standardized procedure for procurement in public sector
There is a contract review mechanism.
Promotion of principle of competition with a view to obtaining value for money by adopting international best practice in public procurement and award of contracts.
Elimination of opportunities for corruption, waste and inefficiency in the award of all federal government contracts.
E-procurement has been introduced, which makes it easy for bid invitation, bid submission, expression of interests, evaluation/ award of bids, monitoring and evaluation of budget.
Setting of dispute resolution mechanism.
Conclusion and Recommendations
If the public procurement Act which has council member and bureau with specified role covering the organization of procurement, procurement and restricted methods of procurement, surveillance and review, code of conduct and offence for suppliers, contractor consultants and the procuring entities is properly followed for government procurement, then the implementation of budget will bring out value for money which is aimed at the management of public funds in Economical, efficient and effective manner.
References
Anonymous (2006)managing and monitoring Budget implementation Retrieved from http:// www. Adb. Org/ document Manuals/govt
expenditure/ chap7. Pdf
Ayoola (2008) The war Against Corruption, ICPC Act 200 And its Implication for University Auditors. A Paper Presented at the Annual conference of the Committee of Heads of Internal Audit in Nigerian Universities, held at Federal University of Agriculture, Abeokuta Nigeria
Oguonu, C.N. (2007) “Due Process and procurement in the Nigeria public sector. Retrieved from http:// www.hollerafrica. Com / show Article. P hp? Catld=1$ artld =248.
Daniel, G.L (1999). public Sector Accounting Pg 67, Ahmadu Bello University press Ltd, Zaria.
Due Process, Public Procurement Act, Fiscal Responsibility Act,
Ekpenkhio, S.A. (2003). Public Sector Procurement Reforms: The Nigeria
Experience. A paper Presented at the Regional Workshop on Procurement Reforms and Transparency in Government Procurement for Anglophone African Countries in Tanzania.
Fiscal Responsibility Act, Allocation of Revenue (Federal Account, etc, Act) Finance (Control and Management) Act. Federal Republic of Nigeria Publication
Oguanu, N.C(2008). Due Process in the Nigeria Public Sector.
Onyekpere, E (2008). Socio political Issues and Civil Society Expectations For public procurement Reform
Oqua, I.B (2005). Contract Review, Reporting and Certification for Contract Award. Being a Paper Presented at Technical Training Workshop for State Governments Willing to Adopt Due Process, Held in Abuja.
Robert, N.A et al, (1979) Management Accounting Principle, 2nd edition, London, Glasgow Publishing Ltd.
The Corrupt Practices and other Related Offenses Act, 2000,
Wittig, W.A. (1999). “Building value through public procurement: A Focus on African” 9th International. Anti Corruption Conference, Durban, South African
GLOBAL FINANCIAL CRISES AND TRANS-NATIONAL PUBLIC SERVICE DELIVERY: THE AFRICAN PERSPECTIVE
Abdullahi MOHAMMED
Abdullahi is a Lecturer at the Department of Public Administration, Nasarawa State University, Keffi.
Tel: +234(0)8037867095, +234(0)8059059424
E-mail:
[email protected]
Abstract:
This paper undertakes a critical look at the financial crises that is threatening economies of the world and the state of Public Service Delivery of nations, particularly African states. It attempt to underpin some silent questions begging for answers as they relates to the welfare of Africa’s over 500 million people in the current uncertainty. The people of the continent depend solely on external sources of revenues to carry out much needed social services like roads, portable water, electricity, healthcare and even food staples through subsidised agriculture, yet a large percentage of the revenue requirements for such services have been foreign-driven. More so, a good number of services like the fight against HIV/AIDS and scholarship grants to educate the children are funded by foreign bodies. This poses serious concern about the future of the continent since all the avenues such as foreign aids, foreign direct investment and export of raw materials which support government organised investment in this important sector are also hit by the melt down. This study employs Content Analysis to review existing data on the subject matter; it also adopted Minsky’s Theory of financial fragility as theoretical framework for understanding financial crisis in Africa. The paper therefore believes that African nations must devise a whole lot of approach aimed at providing alternative sources of revenue generation locally. This will serve a twin-objective of substituting foreign driven revenues and also reduced the immediate impact of the current crisis.
Introduction:
The journey to nationhood among African nations can be said to be a mixed-bag, while some like Nigeria and Benin republic got their independent on a platter of gold other countries like South Africa and Zimbabwe had to sweat it out from their colonial occupiers. While the colonialist are said to develop few sparsely public services like roads, rail tracks and schools (designed to smoothen colonial control of the people), the post-independence African leaders did not entrenched any sound action plan for the development of robust public services. Despite the importance of public service to human development, very little has been done to improve it (Olurode, 2005). The absence of a sound master plan, coupled with cash-trap syndrome, bad leadership and host of other drawbacks have placed public service delivery among the most disturbing phenomenon in Africa.
While analysis have shown that majority of African countries lacks the will to address the aforementioned challenges to effective public service delivery, the nations of the continent wake up recently in 2007 to face a new reality of financial melt-down across the world. Africa now understands that there could be very little amount they can generate from abroad in form of foreign loans, foreign aids, intervention funds, foreign direct investments (Habiyaremye and Soete, 2010)
.
A flashback into the period around the 1980s when the IMF and World Bank inspired Structural Adjustment Programme (SAP) was at its peak in Africa, many governments in the continent commercialised or abandoned public service delivery in an effort to rationalise it as proposed by the policy. Though, SAP was designed to entrench a well coordinated service delivery across the continent, the policy failed the people for whom it was meant to serve (Brown, Ryan and Parker, 2000). To give a clear picture of what followed as a result of the impact of SAP in African societies Brown et al (2000) further stated:
People lost lives for being unable to meet their ‘share’ of the costs of medication at public health facilities while many children stayed at home for lack of school fees for the twin reasons that the governments had introduced cost sharing in public schools and at the same time sent some people away from the civil service, some of whom had wide dependency networks extending beyond their immediate families.
Throughout the African countries from Senegal, Ghana, South Africa, Ethiopia, Sudan, Benin to Nigeria among others, governments have been entrusted to finance, execute and provide basic services like health, safe water, education, road and modern sanitation. Provision of adequate services in these areas may mean enhance development in which the infant mortality rate will reduce, the labour force becomes more skilled through better education and farmers can have enhanced access to the market when good road networks become a common place (Dessy, 2007). Yet despite decades of revenues from exploration of gold, oil and diamond etc development have not reached those who needed it - the poor (World Bank Report, 2004). More worrisome is the fact that the continent’s poor performance in essential delivery seem not to respond reforms and changes in institutional arrangements, failures and drawbacks continues with new regimes of change creating a picture of pessimism.
Such pessimism become even more resounding when a cursory assessment is taken on the failure of many countries in Africa to failing school enrolment and education, ill-health and poor medical services, increasing maternal death and infant mortality, some of the condition to the attainment of Millennium Development Goals (MDGs).
Arising from the foregoing thus: the financial crisis will mean decline in the funding for these vital services due the over reliance by countries of Africa on foreign sources to execute these vital services.
The central objective of this study is to review the state of public service in Africa and the impact of global financial crises on the continent’s quest for a sustainable development of its moribund public services.
Other specific objectives set forth by this study are:
Make an assessment of availability of funds for services delivery before and after the crisis
To identify effort being put in place by African governments to mitigate the effect of the crisis and
To proffer solutions on the way foreword
Africa is today the sick-man of the world, people living in both country side and urban areas are not immune to diseases ravaging the most if not all the nation; the continent is home to 60 percent of the world’s malaria cases, 30 percent of tuberculosis cases and a little above two-thirds of HIV/AIDS cases. Deaths prevalent are higher than in other continents, which imply the failure of health systems to cope with these epidemics. In spite of this, Africa spends one percent of total global health expenditure (Dessy, 2007). This constitute a major problem for this study
Another problem is that of water and sanitation across the continent, facts available for this study have shown that with an average urban population growth rate of 5 per cent per year for Africa as a whole, the demand for both water and sanitation services is growing steadily (Kessides 2005). Available statistics from UNICEF (2006) suggest that the number of unserved people in sub-Saharan Africa – rural and urban will grow by a further 47 million for water and 91 million for sanitation between 2004 and 2015. In 2006, only 35 per cent of urban residents in the region had a household water connection (WSP, 2009).
Children of schooling age can be seen roaming the street of Africa, in country like Nigeria, child abuse (in form of child labour) is rampant. When African ministers of education met in Dakar in 2000, the mood among many analysts was that a determination for sound transformation in education had began, yet school enrolment had been sporadic. In the light of the above, the Millennium Development Goals Report (2005) stated:
Getting children to school is one thing, keeping them there is quite another, with many children dropping out before they complete their primary schooling. The education received is often of a poor quality and fails to equip pupils with the skills and knowledge they need to lift themselves and their society out of poverty.
Another problem is the abrupt manner which the international financial crisis cut Africa’s growth journey in its track, though in different dimension and magnitude across the countries. For instance in Nigeria it was liquidity crunch that hit banks, while South Africa experienced “sudden stops” of capital flows in 2008. External equity and bond issuance reached a level of about $20 billion in 2007 only to decline to less than $4 billion in 2008 and Egypt suffered losses similar to other Emerging Market Economies (EMEs), although they have been slowly recovering since the second quarter of 2009 (ADB, 2009)
The question is how can the continent of Africa meet the financial needs to curb the challenges of poor public services in the midst of these drawbacks? This research will review data and evident of the subject matter to make a review and proffer solutions to problems highlighted above.
Specific objectives of the study are:
Make an assessment of availability of funds for services delivery before and after the crisis
To identify effort being put in place by African governments to mitigate the effect of the crisis and
To proffer solutions on the way foreword
Theoretical Perspective:
This study adopts the Minsky’s theory of financial fragility (1974), to explain the link between events leading to the crisis and measures that may be taken to cushion the effect of the crisis. The Minsk’s theory, code-name after the founder Hyman Philip Minsky an economics professor at Washington University in St. Louis, United State of America, proposed explanation linking financial market fragility, in the normal life-cycle of an economy, with speculative investment bubbles endogenous to financial markets. Over the years other scholars have tested the viability of Minsky’s thesis to financial crises around the world, (Uchitelle, 1996; Markwell, 2006 and Yellen, 2009).
Throughout his scholarship Minsky argued, that a key mechanism that pushes an economy towards a crisis is the accumulation of debt. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers (Wikipedia, 2010). His argument circulate around financial institutions lending out cash beyond their ability, thereby leading to fragility and high fragility leads to high risk of financial crisis. This explains the financial bubble in the US mortgage loan defaults that triggered the global crisis in first instance and the banking crises in Nigeria that followed, where the Central Bank of the country stepped in with over N500 billion bail-out packages to save Nigerian banks from total collapse due excessive lending to the energy sector (African Development Bank, 2010).
According to Minsky (1974) in “hedge” the borrower can make debt payments of interest and principal from current cash flows of investments. In the “speculative” Minsky submitted; the cash flow from investments can service the debt, thus; cover the interest due, but the borrower must regularly re-borrow, the principal to remain in business. On the “Ponzi” Minsky demonstrates how financial houses take too much risk by lending out based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments. Where the market value of couldn’t rise to service the debt as expected the borrower default and the economy is worse because no new money comes into the economy to finance investment as the crisis begins (Minsky, 1974).
Public Service Delivery: The Journey so far:
Anytime mention is being made on the topic of service delivery in Africa what follows is a feeling of nostalgia, as some will say the past was always better in this part of the globe. Hence, nothing clarifies better the outcomes of services delivery in Africa than this statement from Elma Kassa, a 13-year-old girl from Addis Ababa, Ethiopia:
I go to collect water four times a day, in a 20-litre clay jar. It’s hard work! . . . I’ve never been to school as I have to help my mother with her washing work so we can earn enough money. I also have to help with the cooking, go to the market to buy food, and collect twigs and rubbish for the cooking fire. Our house doesn’t have a bathroom. I wash myself in the kitchen once a week, on Sunday. At the same time I change my clothes and wash the dirty ones. When I need the toilet I have to go down to the river in the gully behind my house. I usually go with my friends as we’re only supposed to go after dark when people can’t see us. In the daytime I use a tin inside the house and empty it out later. If I could alter my life, I would really like to go to school and have more clothes. (World Development Report, World Bank, 2004)
The pathetic picture in Elma’s submission in a remote village of Kinsasha demonstrate fate of millions of Africa’s children and adult alike who live without these basic necessities of live; safe drinking water, quality education, electricity, good health care etc.
What went wrong? Why is the Africa not matching together with other regions of the world in the provision of qualitative and quantitative public service? The answer to these questions cannot be far-fetched considering the many literatures on the topic. In this regard, the dominance of public enterprises in the provision of public service in Africa has been blamed for the terrible position of these services. Government monopoly in the sectors meant that competition is killed resulting in inefficiency and lack of appropriate price regime to consumer demand and accurate service costs (UNESCO, 2005). It is this situation that creates low level of government investment and lack of expansion of the services.
Therefore, African governments must understand that infrastructural development can deliver benefits in economic growth and poverty alleviation, but only when it provide services that respond to wishes and does so effectively and efficiently (World Bank, 1994). In a related submission, another World Bank report (1991) said:
The challenge of development…is to improve the quality of life. Especially in the world poor countries, a better quality life generally calls for higher incomes-but it involves much more. It encompasses as ends in themselves better education, higher standard of health and nutrition, less poverty, a cleaner environment, more equality of opportunity, greater individual freedom, and a richer cultural life. (World Bank, 1991)
Education
In September 2000 at the United Nation Millennium Declaration, the world’s policy makers in adopting the Millennium Development Goals (MDGs) gave education special recognition by dedicating two of the goals to education. First, all children must complete primary education by 2015 and second, to achieve gender equality in education by 2015. In the same vain nations were called upon to rally support for Africa in order achieve the MDGs (Anyawu and Erhijakpor, 2007).
In an attempt to meet the MDGs targets several African leaders embarked on home grown policy formulation. For instance, in Nigeria, the then President, Umaru Musa Yar’adu, in July 2007, called the attention of the country on the need by stakeholders to contribute in addressing the potential collapse of education sector, without which human capital needs of the country may be lost completely (Lohor, 2007). The call become even more timely because although primary education have been on the increase, it has not translates into completion at higher level, thereby producing a pool of school drop outs (Wangwe, 2006).
To buttress this fact Mutahaba and Kiragu (2006) opined:
Even though literacy rates in Sub- Saharan Africa are on an impressive rise due to implementation of the Universal Primary Education (UPE), the new average … reflect basic reading and writing abilities that do not translate to the levels of civic competence necessary for citizen-centered governance. Granted that ‘local knowledge’ is not necessarily expressed academically, a deeper understanding of societal problems and ideas for their resolution require a certain minimum level of intellectual ability. Despite good literacy levels, such civic competence is still lacking in most parts of Sub-Saharan Africa, especially among those living in rural areas.
The Economic Commission for Africa (2005) estimated that Sub-Saharan Africa must increase its workforce in education related MDGs, adding about a million manpower, and increase the present number of teachers by 20 per cent year in year out to be able achieve universal primary education.
Safe Drinking Water
Safe drinking water has been and is still serious problem to many African societies, especially those living in rural area where people in a whole area fetch untreated water from few sources. Sometimes women and children who bear the burden of collecting this precious necessity had to queue up for hours before they fetch water (Todaro and Smith, 2006).
According to United Nation Development Programme Report on Human Development (2006), while in 1990, 48 per cent (Table 1) of residents in sub-Saharan Africa had access to improved water supply and by 2004 the figure had increased to a snail like speed of 56 per cent, implying an increment of 8 per cent only-23 percentage points lower than the developing-country average. With an average urban population growth rate of 5 per cent per year for Africa as a whole, the demand for both water services is growing steadily (Kessides 2005).
Table 1: Sustainable Access to an Improved Water Source
(% of Population)
REGION
1990
2004
Sub-Saharan Africa
48
56
All Developing Countries
71
79
Source: Human Development Report (2006)
Therefore, policy makers and all other stake-holders must demonstrate the will and commitment to embark on strategies aim at quenching the taste of Africa’s growing population for portable water.
Health and Medical Services
The picture of public health care delivery in Africa is horrible as a result almost 60 per cent of the population of the continent obtained medical services from private sector, often at very expensive rates. A World Bank (1994) study found out that 88 per cent official spending on health is lost to inefficiency, leaving only 12 per cent put to good use.
Medical services in Africa is today beyond the pocket of the poor and it is the rich that public health is serving more than the majority of the people-the poor. Costs of medical services have skyrocketed and the average family must commit its meagre resource to food, clothing and other sustenance. Life in this way is a horrible experience (Castro, Dayton, Demery, et al, 2000).
Electricity and Power Generation
In the area of electricity, the picture is even bleaker (see Table 2). Even though Africa need uninterrupted and a steady electricity and power generation to be able run its industries and attracts more investments, power generation in Africa has remained erratic. The proportion of the population in Sub-Saharan Africa with access to electricity rose at a snail’s pace over thirty-two years-from nine per cent to only 24 per cent. In 2002, over half a billion people in the region still lacked access to electricity, about 80 per cent of them in rural areas. As shown in the table, the other poorest region of the world, South Asia, made much more progress during this period (Bayliss and McKinley, 2007).
Table 2: Access to Electricity
(% of Population)
REGION
1970
1990
2002
Sub-Saharan Africa
9
16
24
South Asia
17
32
43
Source: World Energy Outlook (2002-2004)
For instance, in Nigeria the democratic government in 2008 promised the nation 10,000 megawatts of electricity by the end of 2009 through the country’s power generating enterprise (Power Holding Company of Nigeria), yet by December, 2009 at expiration of the dead line, only 2000 megawatts was generated by the same public officers that have messed things up in the past (Onyekpere, 2009).
Methodology Adopted:
This study is based on a review of the existing literature on facts and figures relative to the financial crises in Africa. It also employs texts on public services in some selected countries. Therefore, the study adopted two methodologies; Content Analysis and Analysis of Existing Data. Though the later is not widely known and defers only a little to content analysis, it involves the use of data and figures tested in previous studies on related topics (Omale, 2008).
Impact of the Crisis: Myth or Reality
The term financial crisis meant many things to difference people, institutions or societies, for instance to an average man or woman on the street of Africa like Elma Kassa (see previous pages), financial crisis could mean lack of few cash to buy food or cloths in local market of Kinsasha. Yet, within the context of this study financial crisis is apply broadly and consistently to a variety of situation in which some financial institutions or assets lose a large percentage of their value. It may also involve stock market crashes and cash crashes (Wikipedia, 2010)
The recent global financial crisis, actually brewed for a while between the middle of 2007 and into 2008, yet, the effect is being felt by many developing economies, especially the countries in sub-Saharan Africa (Shah, 2009).
First, the crises has negatively affected the export of raw material and tourism in Africa, crude oil prices have fell below 60 dollars a barrel in 2008 dropping from a record high of 147 dollars about the same period in 2007. Second, remittance to some African countries from overseas immigrants of the continent’s origin has been decreasing dramatically. Third, the free fall of US dollar invariably meant a great pressure on local currencies in some African nations, leading to fall in property prices (Zhongxiang, 2008). According to IMF’s World Economic Outlook (WEO) Report (2008), African economic growth rate will slow down, and growth is estimated at 5.2 per cent and 4.7 per cent for 2008 and 2009 respectively, which shows that the figure is lower than 6.1 per cent for 2007. In a related viewpoint, Action Aid International report, “Hole in the pocket” published in November, 2008, estimates that the predicted fall in economic growth for developing countries is equivalent to a total loss of 414 billion US dollars, which it says could reduce spending on education, health, rural development for those countries.
African governments rely heavily on aids, and other financial and technical assistance in all the areas of public and social services, these ranges from agriculture, health care, education, water supply to environment. These aids come in form of Oversee Development Assistance (ODA), funded by most UN agencies throughout the continent and funds have decline over time. According to Brett House, a senior economist with UN Development Programme (UNDP), experience has shown that market turmoil and recession leads to decline in global ODA up to 40 per cent (IRIN News, 2008).
Other resultant fall-outs from the global financial crisis include tax evasion by multinational corporations operating in African countries. Large international companies have defaulted, minimised, or illegally evaded their tax obligation in many countries around Africa. The figure for tax evasion in developing countries is estimated at 160 billion US dollars according to Christian Aid’s Report (2008). The report concluded that such amount could save the lives of 350,000 children under the age of five in developing nations.
The quantum of export by African economies has declined continuously, due to the financial meltdown. According to World Trade Organisation Report (2009), cited by African Union Commission Report (2009), the growth of Africa’s exports in real terms fell from 4.5 per cent in 2007 to 3 per cent in 2008. Import growth fell from 14 per cent in 2007 to 13 per cent in 2008. It stated further that though, trade figures for 2009 are not yet available, forecasts by the World Trade Organization indicated that the volume of global trade is expected to decline by 9 per cent in 2009, which could have a negative effect on Africa’s exports in 2009. As a result of the crisis, nations of Africa lost about 30 to 50 per cent of its 2008 export revenues in 2009. Trade balance deteriorated remarkedly during the period under review (African Development Bank, 2010).
Foreign Direct Investment (FDI) and equity investment also suffered serious decline around the continent, with varying intensity. For instance, South Africa experienced massive decline of FDI flows in 2008. Its external equity and bond issuance reached about 20 billion US dollars in 2007 only to decline to less than 4 billion US dollars in 2008 (African Development Bank, 2010).
Going by the aforementioned, one may be compelled to ask, what is African head of governments and other stakeholders doing to mitigate the impact of the crisis and forestall further escalation?
Matching away from the Tight Rope:
To address the situation and match away from the tight rope of the global financial crisis, African states have united to form a common front. On November 12th 2008, African Central Bank Governors and Finance Ministers met in Tunis to articulate ways of reducing the impact of the crisis (Zhongxiang, 2008). But as matter of fact Africa’s effort alone won’t work.
Africa adopted several domesticated responses, part of which includes fiscal stimulus packages, softening monetary policy, and targeted sectoral assistance as the case of Nigerian Banks show; other measures are capital and exchange controls, and new financial regulations.
Moreover, some African countries milked out their meager reserves to reduce the impact of the meltdown, such countries includes, South Africa, Nigeria, and Morocco. South Africa for instance, set aside 100 billion dollars for investment in the public sector for 2010 – 2012, while Kenya issued out public infrastructure bond, (first of its kind in the country). Botswana on the other hand received 1.5 billion dollars from African Development Bank (ADB) to sustain it robust private sector (African Development Bank, 2010).
Conclusion and Recommendation
This study has been able to analyse the state of public service in Africa and the impact of global financial crisis on the continent’s quest for sustainable service delivery. The study also found out that Africa is innocent of the global financial crisis and therefore, as a victim, external sources of fund are urgently needed to cushion the effects. But facts collected have also shown that very little is available compared to about $50 billion per year needed by the continent as complimentary investment from external sources.
Therefore, this study is of the view that nations of Africa must learnt to channel their meager resources toward improving conditions than can guarantee investments into the continent. The continent must invest in developing qualitative manpower, which can bake new ideas and techniques, and be able to manage the various sectors of the economy effectively. African leaders must also leant to be accountable to the people, they must promote and respect sound democratic values, create avenues for generating revenues from within the continent and finally develop concrete mechanism for delivering services the people of Africa.
Unless and until something is done urgently to reverse the trend of poor service delivery, Africa will be left in the midst of darkness of a perpetual night without a down. A down that the continent’s present and future generation needs with urgency.
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ASSESSMENT OF GOVERNMENT INITIATIVES ON ENTREPRENEURSHIP DEVELOPMENT AND POVERTY ALLEVIATION IN NIGERIA
Garba Bala BELLO
Dr. Bello is a Lecturer at the Department of Business Administration, Bayero University, Kano., PhD
Abstract
This paper is an assessment of government's initiatives on entrepreneurship development and poverty eradication in Nigeria. It is aimed at identifying the effectiveness or otherwise of the government strategies in eradicating poverty in the country. Journals, magazines and conference papers are used in the study. Content analysis method is employed. It has been found that there is strong relationship between poverty and the dearth of strong entrepreneurs compounded by insufficient start up capital for the business owners. Thus, finance is the major obstacle to the growth and survival of enterprises in Nigeria. As a result of these findings, it is recommended that there is the need to develop entrepreneurship with its main focus on agriculture with micro, small and medium enterprises as the areas that must be mobilized to provide reliable employment opportunities, generate earnings in order to empower the populace.
Introduction
One of the goals of economic development founded by successive governments particularly in developing economies has been the reduction of unemployment through entrepreneurial development and poverty alleviation. A cardinal thrust for the achievement of the objective has been the development of indigenous entrepreneurship through provision of enabling environment and financial assistance as well as skill acquisition opportunities (Musa, 2009).
Entrepreneurs have emerged as important agents of economic and social transformation in all countries of the world. Since the adoption of the economic reform programme in Nigeria in 1986, there has been a decisive switch of emphasis from the grandiose, capital intensive, large-scale industrial project based on the philosophy of import substitution to small scale industries with immense potentials for developing domestic linkages for rapid, sustainable industrial development (Musa, 2009). Consequently, both the Federal and State government and recently local governments, have stepped up efforts to promote the development of entrepreneurship through increased incentive schemes, including enhanced budgetary allocations for technical assistance programmes to stimulate economic growth and overall development. New lending schemes and credit institutions such as the National Economic Reconstruction Fund (NERFUND), World Bank Assisted Small-Scale Enterprises Loan Scheme, Nigerian Export and Import Bank (NEXIM), (the Bank of Industry (BOI) and the Nigeria Agricultural Cooperative and Rural Development Bank (NACRDB) have also emerged at both the national and local levels to boost the flow of "development finance" to entrepreneurs which have so far depended on personal savings and credit from informal sources for both their investment and working capital (Anyanwu, 2001).
However, the operation of enterprises has been bedeviled by serious problems ranging from finance to that of management. These problems include inadequate finance, ignorance of institutionalized incentives, high rate of business mortality, lack of trained personnel, restricted market, lack of technical advice, lack of efficiency, aversion to ownership dilution, poor accounting and record keeping, diversion of business funds, poor infrastructural facilities, inadequate and unharmonised incentives and lack of appropriate technologies (Anyanwu, 2001).
These problems enumerated above could be conveniently categorized as financial, managerial/technical, commercial and infrastructural. The financial problems have their origin in the humble circumstances of the small and medium scale entrepreneurs and their disabilities in making maximum use of the resources of the organized financial sector (Inegbenebor, 2006).
It is in the light of the above that this paper critically assesses government's initiatives on entrepreneurship development and poverty eradication with a view to determining the variables promoting or militating against the relationship between entrepreneurship and poverty alleviation. This is focused on the Federal Government’s initiatives or measures to address poverty and boost entrepreneurship especially poverty related to high unemployment among the citizenry.
The Concept and Development of Entrepreneurship
The function that is specific to an entrepreneur is the ability to take the factors of production and use them to produce goods and services. The entrepreneur is a person who takes risk by introducing new ways of making old products and also introducing new products; he perceives opportunities that other business operators do not see or do not care about. Some entrepreneurs use information that is generally available to produce something entirely new. According to the Microsoft Encyclopedia (2005), an entrepreneur is an individual who assumes responsibility of establishing or running a venture and the risk associated with the expectation of making a profit. The entrepreneur generally decides on the product, acquires the facilities and brings together the labour force, capital and production materials. If the business succeeds, the entrepreneur reaps the reward of the profits; and if it fails, he takes loss.
In the views of Gana (2000), a natural entrepreneur should have a vision of something new and a belief in it that is so strong that it becomes a reality; a touch of craziness; act instinctively; have ideas constantly bubbling and pushing up inside until they are forced out; be pathologically optimistic; and a covert understanding that you do not have to know how to do something. Entrepreneurship is arguably the veritable vehicle that could consolidate this aspiration. Entrepreneurship is described by Gana (2000) as the process of organizing, operating and assuming the risk of a business venture, fastening economic growth; increasing productivity; creating new technology; and generating market competition.
Despite the apparent benefits, indications are that all is not well with entrepreneurship in Nigeria. One of the factors identified as barriers to entrepreneurship is the lack of seed capital (Oshagbemi, 1983). This is more acute in Nigeria with more than 70% of the entire Nigerian population living below poverty level (Bello, 2008). The implication of the lack of seed capital as a barrier to the development of entrepreneurship becomes even more glaring. Although many entrepreneurs take advantage of various lending and assistance provided by lending institutions and government agencies, the procedure and methodology for accessing these facilities do not necessarily follow due process.
This has foreclosed a large segment of genuine beneficiaries. Also, because of limited risk taking there is observed dearth of small scale businesses. Without taking risk there will be no entrepreneurship and by extension, no wealth. The implication is the vicious circle of poverty evident in the Nigerian society today.
Typically, entrepreneurship development follows a cycle consisting of stimulating, supporting and sustaining activities (Gana, 1995). The stimulating activities ensure the supply of entrepreneurs ready to make initiatives and organize their enterprises by risk taking through awareness programmes.
The support activities, however, provide infrastructural facilities, resources like information, finance, technology, ability and skills for enterprise launching. The support activities refer to efforts that facilitate the growth and continuity through expansion, modernization, diversification, technology and provision of enabling environment for growth and survival of small businesses.
The Concept of Poverty Alleviation
A review of various literatures on poverty shows that a standard concept of poverty remains elusive because of its multi-dimensional nature as well as its dynamic properties.
Aboyade (1975) looks at poverty as a replica of an elephant that is more easily recognized than defined. While for Anyanwu (1997) among others, any study on poverty must begin with a conceptualization of poverty in order to provide a focus by which we can determine the limit of our understanding of the subject matter. To conceptualize poverty, most economists define it simply as a situation of low income or low consumption while some of them adopt a broader definition such as being unable to meet materials needs encompassing food, water, clothing, shelter, education, health, as well as basic non-materials needs including participation, identity, dignity etc (Obadan, 1997).
Ogwumike (1991) specifically defined poverty as a situation where the income of the families was insufficient to obtain the maximum necessities for the maintenance of merely physical efficiency. This definition has been refined and extended such that it forms the background for the family basic needs approach to the study of poverty. In this connection, the concept of absolute poverty emerged as simply a situation where the income of a person or a household is insufficient to secure the minimum basic human needs required for physiological attainment. The Human Development Report (1997) described poverty in terms of the absence of some basic capacity to function to attend to some minimally acceptable level of well being.
The methods of measuring poverty are as varied as its conceptualization. However, the basic approaches seem to focus on the standard of living measure and the poverty line concepts (Anyanwu, 1997). Under the first approach, household income and expenditure per capita are globally regarded as adequate yardsticks for determining the standard of living as long as they encompass income and consumption accruing to owners' production. This approach makes the measurement of the standard of living in a country like Nigeria rather difficult, in view of the standard of living in apparent difficulties in capturing data on the economic activities of the country's largest employer of labour of the informal sector. Most activities in this sector are not monetized, as such it is difficult to quantitatively determine the welfare implication of income and expenditure of owner consumption output or owners occupied settlements. Basic scenario, the measurement of income, certain goods, poor health, life expectancy, literacy and the use of publicly consumed goods such as rivers, bridges, roads, electricity and sorting facilities, whose effect influence the standard of living poses a problem. Odusola (1997) defined absolute poverty as the absence of minimum resources to consume basic goods and services, which are critical for survival. The immediate problem with this approach is the inability to adequately define and quantify what is the minimum standard for basic necessities as well as what minimum resources are. The problem arises because of these variables are subjected to individual test, preference, culture and exposure.
On the approach to poverty alleviation in Nigeria, government takes the forefront, at least in policy formulation, coordination and selected intervention into which the private sector and NGO participants could dovetail their activities (Ekpenyound and Nyaung, 1992). The thrust of the government's activities in Nigeria is the introduction of poverty alleviation institutions, agencies and even ministries. These areas of intervention vary in accordance with the perceived needs of the people. These also follows the patterns of actions such as provision of micro-credit, transportation, health programmes, farming inputs and implements, skills acquisition, women empowerment and so on.
The Federal Government in addition to pursuing the process of poverty reduction strategy, has established the National Economic Empowerment and Development Strategy (NEEDS), which is rested on reforming the way government and its institutions works, growing the private sector, implementing a social change for the people with an enduring African value system (NEEDS, 2005).
Moreover, in Nigeria, there are various actors who claim to be initiating, executing, co-ordinating, monitoring and reviewing activities meant to help the poor out of poverty. These actors include Community Based Organizations (CBOs), Non Governmental Organizations (NGOs), government at the local, state and federal levels, the private sector group (Corporate bodies and individuals) and international organizations. For poverty alleviation activities to have any meaning and direction, all these actors must work together as a force led by the Federal Government (Dandago, 2008).
There are policies, programmes and incentives which were carried out by the Federal Government to assist towards the financing of entrepreneurs and building their capacity. The National Directorate of Employment (NDE) was established in 1987 in order to provide and generate employment opportunities as well as an instrument for promoting entrepreneurship. The National Economic Reconstruction Fund (NERFUND) as a programme was established in the late 1980s to help SSEs cushion the negative impact of high cost of production inputs as well as high interest rate. Similarly, the fund serves as a bridge to bank lending to Small Scale, Enterprises (SSEs). The Industrial Development Centre (IDCs) was first set up in 1962 by the Eastern Nigerian Ministry of Trade and Industry but later the Federal Government took it over and established similar centres in other parts of the country. They were established to promote financing of SSEs and also to assist and guide SSEs on process techniques, machinery and equipment training (Farouk, 2009).
Failures of Poverty Alleviation Programmes
It should be recalled that all the institutions established earlier for alleviating the poverty not much achievement were recorded. For instance, in 1988 alone, NDE disbursed a total of about N1.5 billion for agricultural loans, in the same year NEFUND disbursed the sum of about N2.5 billion for small/medium scale industries (Mertedith, 1991). Through other related and similar schemes such as SME, ADP and the peoples Bank of Nigeria, a lot of additional funds were expended by the Federal Government for the purpose of providing credit facilities to Nigerians. Unfortunately, more than twenty years after, the country does not have much to show for it (Musa, 2009).
A number of explanations might be advanced for failures of the programmes:
The problem of development has usually been narrowly conceived and limited to resources availability (Mertedith, 1991). This usually is defined as a credit rather than a financing problem. Credit is concerned with a particular project or aspect of a programme over a short term period. Financing in contrast is concerned with the entire programme throughout the life of the programme.
Responsibility for success is removed from beneficiaries and placed on the creditor who is ill-equipped to handle the situation (Nnanna, 2001). Credit beneficiaries soon lose enthusiasm and commitment and almost divert the facility to non-functional and non-economic activities.
Timing and mode for disbursement are all together wrong, which lead to wrong conception by the beneficiaries (Nnanna, 2001). Credits seem to be made to coincide with a political event. Disbursements are made on the occasion when the President is visiting and the first few disbursements are in fact made by him. Surely the President can't lend a poor guy N15,000 and expect repayment.
Since beneficiaries do not expect to repay, nepotism become the basis for getting a credit facility (Inang and Ukpong, 1992). All that is required is to be related to a relevant person. Such relationship may be political. There is great danger that only members of a certain party could benefit from the poverty alleviation programmes.
Government Effort Towards the Finance Of SSEs
The Government has been making efforts towards promoting the finance of SSEs through the articulation of policy and programmes because of the following benefits and advantages:
To promote effective utilization of resources
To check the menace of rural migration
To generate employment per unit of capital invested (Olorunshola, 2001).
According to the following policies, programmes and incentives were carried out by the government to assist towards the financing of SSEs.
National Directorate of Employment (NDE)
It was established in 1987, in order to provide and generate employment opportunities through financing as well as act as an instrument for promoting entrepreneurship. NDE programmes help to develop skills, creates youth employment for those that participated in one of their programmes and link them up with participating banks (Farouk, 2009).
National Economic Reconstruction Fund (NERFUND)
This programme was established during the IBB regime in order to help SSEs cushion the negative impact of high cost of production inputs as well as high interest rate (Musa, 2009). Similarly, the fund serves as a bridge to the bank lending to SSEs.
However, in a statement of Musa (2009), a number of factors constrain the effective performance of the fund which includes the risk associated with lending should be borne by participating banks and import restriction of inputs machines conflicts over the definition of qualifying project under capitalization and management related incompetence.
Commercial Banks
They are financial institutions which provide finances not only to the sector of the economy but also to SSEs. They normally financed project that are economical, technically viable and feasible. The CBN through its monetary and credit guidelines instruct banks to set aside at least 35% of their total bank loans and advances to indigenous borrowers (Nnanna, 2001).
SSEs in Loan Scheme
This scheme was established by CBN in conjunction with the Ministry of Finance in (1988). They negotiate and obtain financial aids from the World Bank. More than 102 SSEs benefited from such scheme (Olorunshola, 2001).
SSEs in Equity Investment Scheme
According to Olorunshola (2001), the scheme was formed in 1999, by bankers committee. It is a voluntary initiative that requires banks to set 10% of their profits after tax for the promotion of SSEs. This is a contribution towards the development of the economy by the banking sector. Equity investment scheme defines SSEs as an enterprise with maximum assets base of N500 million (excluding land and working capital and with no minimum or maximum number of staffs).
Industrial Development Centres (IDCs)
The first centre was set up in 1962 by the Eastern Nigeria Ministry of Trade and Industry. While the second national development plan (1970-1974) allocated N800,000 for IDC. Inang and Ukpong (1992) state that the main objectives of IDC is to promote the financing of SSEs and also to assist and guide SSEs on process techniques, machinery and equipment training. IDC offers the following services.
Identification of viable SSEs for prospective entrepreneurs
Selection of manufacturing process
Assist in the installation of machinery
Help SSEs to access financing
Central Bank of Nigeria
The National Bank plays a vital role in channelling credit to the industrial sector. There has been an increased in the volume of banking credit to manufacturing sector from N3.0 billion to N82.86 in 1997. This suggests an improvement in the financial intermediation in the economy over the years (Nnanna, 2001).
The Need to Finance SSEs
SSEs existence prior to 1970 seems to be justified by scarcity of capital and administrative experience. But a new approach towards SSEs began to emerge due to some factors. Firstly there was low employment, elasticity of modern large scale production. It was argued that this form of industrial organization was unable to absorb a large proportion of the rapid expanding labour. Secondly, the benefits of economic growth were not fairly distributed because large scale intensive techniques were partly to blame. Thirdly, it was showed that poverty is not as a result of unemployment because most of the poor people were employed in various SSEs activities. Thus it is through this way to alleviate poverty that could increase the productivity of SSEs (Farouk, 2009).
Musa (2009) states that the major impediment to the establishment and growth to SSEs is their inadequate access to finance, thus the need for improved means of financing SSEs development is great and difficult to meet. SSEs are constrained by lack of access to finance, this result in a number of problems such as capital scarcity. Firms would only be able to grow and expand with sufficient financial assistance.
Conclusion and Recommendations
From the foregoing discussion, it can be discerned that there is a strong relationship between poverty and the dearth of enterprises in "Nigeria. This is due to a number of reasons, firstly, there is insufficient start up capital for most of the business owners. Secondly, finance constitutes a major obstacle to the growth and survival of most enterprises in the country. Other factors responsible for the inhibition of growth and survival of enterprises include, lack of market as a result of stiff competition and unfavourable business environments. Moreover, there is dearth in the provision of infrastructure in the country. Lastly, the non governmental agencies (NGOs) arc not living up to the expectations of the citizenry in terms of loan provision, standing as guarantor in obtaining loans and serving as a link with research institutes and experts in entrepreneurship development. Taking cognizance of the above conclusion, the following recommendations are made:
Human development will be grossly undermined and impaired without employment. Entrepreneurship, with its main focus on agriculture, micro, small and medium enterprises is the areas that can and must be mobilized to provide reliable employment opportunities, generate earnings in order to empower the populace which will stem the rural-urban migration and its negative tendencies.
Concerted efforts should be made at building the capacities of potential entrepreneurs. This can be done by organizing seminar and workshop by some specialized agencies such as private consultants, and governmental agencies such as National Directorate of employment. This can play an important role in providing solutions to the managerial incapability of entrepreneurs and other similar problems associated with the entrepreneurs.
Infrastructural facilities need to be improved in Nigeria as a matter of urgency. This will help in ensuring easy movement of goods and services from place of production to place of consumption. For instance, electricity and water supply and distribution should be improved and made effective.
Since inadequate technical and managerial capacity hamper the operations of some NGOs, government should identify and assess credible NGOs nationwide; maintain a national register of credible NGOs in their various field; promote linkages for NGOs with local and international resources providers, provide linkages with relevant government agencies and research institutions; co-ordinate the drawing up of guidelines for micro finance intermediaries in collaboration with Central Bank of Nigeria, and other stakeholders; and identify and support credible micro finance institutions through provision of access to training, best practices, networking activities and other resources.
The Central Bank of Nigeria must be completely independent. It should be allowed to set out clear economic goals, which should ensure effective control on inflation, credit exchange, monetary and fiscal policies. These should be put in place at all times to ensure capital inflow and expansion, more investment opportunities and encouragement of savings.
The country should aim at producing God fearing and purposeful leadership. There must be good governance in all tiers of government. Elections at every point in time must be credible to avoid dissatisfaction.
References
Aboyade, O. (1975). On the Need for an Operational Definition of Poverty in the Nigerian Economy. In Conference Proceedings Organized by Nigeria Economic Society (NES).
Adewani, (1993). The Role of Small Scale Industries in the Nigerian Economy. Being a paper Presented at a workshop organized by NDE. Enugu State, April.
Akwaeze, C. G. (1985). Practical Steps in Raising Finance from Banks. Fourth Dimension Publishers, Ibadan.
Anyanwu, E. (1997). Poverty in Nigeria: Concepts and Measurement and Determinants. In Poverty Alleviation in Nigeria. Proceedings of the 1997 Annual Conference of the Nigeria Economic Society.
Bello, G. B. (2008). The Role of the Business Community in the War Against Poverty in Nigeria. In Duze, M.C et al, Poverty in Nigeria: Causes, Manifestations and Alleviation Strategies (eds). Adonis and Abbey Publishers Ltd, London.
Dandago, K. 1 (2008). Poverty Alleviation in Northern Nigeria: LEEMP as a Reassuring Alternative Strategy. In Duze, M.C. et. al, Poverty in Nigeria: Causes, Manifestations and Alleviation Strategies. Adonis and Abbey Publishers Ltd, London.
Ekpenyound D. B and Nyaung, N. O. (1992). A Small, Medium Scale Enterprises Development in Nigeria. African Economic Research Consortium Research Paper 16.
Farouk, Z. W. (2009). Challenges of Financing Small Scale Enterprise in Nigeria: A Case Study of Kano Metropolis. An Unpublished MBA Project Submitted to the Dept of Business Admin, Bayero University, Kano.
Gana, J. S. (1995). Entrepreneurship. Joefegan Associates, Jos, Nigeria.
________ (2000). Entrepreneurship. 2nd Ed., Joefegan Associates, Jos, Nigeria.
Inang, E. E. and Ukpong, G. E. A. (1992). A Review of Small Scale Enterprises Credit Delivery Strategies in Nigeria. CBN Economic and Financial Review, Lagos, Vol. 30, No. 4 (p 251-264).
Inegbenebor, A. U (1989). Entrepreneurship. In Ejiofor, P. (eds.), Foundation of Business Administration. African Feb Publishers Ltd, Onitsha.
Mertedith, G. (1991). The Practice of Entrepreneurship. Lagos University Press, Lagos
Musa, A. (2009). Critical Assessment of Government Initiatives on Entrepreneurship Development and Poverty Eradication. A Case Study of NEEDS. An MBA Project Submitted to the Department of Business Administration, Bayero University, Kano.
Nnanna O. J. (2001). The Importance of Small and Medium Scale Industries in Economic Development. A Paper Presented at the Workshop on the Small and Medium Equity Investment Scheme. June.
___________ (2001). Financing Small-Scale Businesses under the New CBN Directives and its Likely Impact on Industrial Growth of Nigerian Economy. Bullion, Vol. 25, No. 3, CBN.
NEEDS (2005). National Economic Empowerment and Development Strategy, Central Bank of Nigeria, Abuja.
Obadan, M. I. (1997). Analytical Framework for Poverty Reduction: Issues of Economic Growth Versus Other Strategies. NES Annual Conference.
Odusola, F. A. (1997). Poverty in Nigeria: An Eclectic Appraisal. In National Conference Proceedings, Organized by the Nigerian Economic Society (NES) on Poverty Alleviation in Nigeria, Chapter
Ogwumike, F. O. (1991). A Basic Needs-Oriented Approach to the Measurement of Poverty in Nigeria. In Nigeria Journal of Social and Economic Studies (NJESS), Vol. 33, No. 2.
Olorunshola, O. (2001). Perspective on Finance, Banking and Economic Policy in Nigeria. Heinemann Educational Books, Lagos.
Oshagbemi, A. T. (1983). Small Business Management in Nigeria. Longman Publishers, Lagos.
THE EFFECT OF BANK CAPITALISATION ON LOAN SIZE IN NIGERIA
Ahmad Bello DOGARAWA
[email protected]
Abstract
This paper empirically examines the effect of capitalization on the lending activities of banks in Nigeria using logarithmic transformed Central Bank of Nigeria’s aggregated data on capital base and loans and advances of the entire Deposit Money Banks (DMBs) over the period of 1998 to 2008. The result from the estimated parameter of the ordinary least squares (OLS) regression model shows that an increase in the level of capital base of banks translates into an increase in the size of loan to the economy as a whole, implying that capital base upward review is important to the extent that it facilitates financial intermediation in the economy. The study recommends that in line with the global trend, the CBN should consider the possibility of introducing capital base differential among banks rather than a blanket uniform capital base in order to allow smaller banks to carve specific market niches for better and more efficient intermediation.
Introduction
Over the years, the Central Bank of Nigeria (CBN) had made capital adequacy of Nigerian banks as one of the top priorities in all banking reforms particularly from the 1970s. Due to her concern over capital adequacy of banks, the CBN has continue to institute and sometimes reinforce legal and regulatory actions in order to ensure that banks in Nigeria operate continuously with adequate capital. This, it is argued, is not unconnected with the role that adequate capital plays in stabilising the banking system and improving the level of financial intermediation.
Beck et al. (2005) observed that since 1952, all the banking laws in Nigeria had specified minimum capital base for banks. According to Somoye (2008), the minimum paid up capital for indigenous and foreign banks between 1952 and 1978 was N600,000 and N1,500,000 respectively. Between 1979 and 1987, initial capital base requirement stipulated for commercial and merchant banks was N600,000 and N200,000 respectively. Lewis and Stein (1997) observed that while the minimum capital requirement basically stabilized during the pre-SAP period, four upward reviews were put in place after SAP in order to adjust for the inflationary impact of the programme induced policies. More so, the increase in the number of operators in 1987 through 1990 led to the swelling up of loans and advances of banks and a consequent deterioration in the quality of banks risk assets (Ningi and Dutse, 2008).
Consequently, in February 1988, minimum capital base for commercial and merchant banks was put at N5 million and N3 million and in October the same year to N10 million and N6 million and further to N20 million and N12 million respectively between 1989 and 1990. In 1991, the CBN introduced the Prudential Guidelines, which mandated banks to recognize early and provide for non performing assets. The consequence of those strict measures was the erosion of the capital base of quite a sizable number of operators as their accumulated reserves were not sufficient to absorb the huge loses (Somoye, 2008), thus leading to another upward review to N50 million and N40 million respectively between 1991 and 1996.
The introduction of universal banking in 2001 led to the elimination of capital base differential between commercial and merchant banks. Thus, between 2003 and 2004, minimum capitalisation for all banks in Nigeria was raised to N2 billion to enable banks absorb shocks from the dwindling economic performance of the sector. In 2004, the CBN embarked on yet another banking reform to solidify the banking system and restore public confidence in the sector by announcing a minimum capitalisation of N25 billion for all banks in Nigeria.
With minimum capital of N25 billion for all banks, the CBN believes that the financial problems of the various sectors of the economy would be over. According to Soludo (2006), banks in Nigeria would expand their branch network and mobilise more funds to lend to the deserving sectors of the economy. The belief of the CBN is premised on one of the arguments in the literature that higher capital base enables banks to engage more in lending due to the supposed positive relationship between capitalisation and loan size. Contrary to this position however, it is argued in some literature that more capitalised banks seem to engage more in investments, other non-core banking activities and financing of only big ticket transactions.
In view of the fact that the literature is not conclusive on the nature and extent of relationship between capital and loan, and more specifically, the outcome of the recent capital base reform is still not widely studied, this paper examines the effect of bank capitalisation on loan size in Nigeria. The paper is empirical with data from secondary source over the period 1998 to 2008. The data was used to test the hypothesis that bank consolidation has no significant effect on loan size in Nigeria.
The choice of the period is based on the fact that the volume of banks’ activities expanded considerably over what was achieved in the previous years due to largely an increase in the differential capital base of commercial and merchant banks from N50 million and N40 million respectively to a uniform amount of N500 million, which make available large funds in the hands of banks for investment. Another reason is the introduction of electronic funds transfer and other related services around the same time, which resulted in a significant increase in deposit mobilisation.
The remainder of the paper is organised as follows. The next section gives the theoretical consideration of the nexus between adequate bank capital and stability of the banking system. Relevant empirical literature is reviewed in section two. Section three specifies the dataset, variables of the study and methodology of analysis. Section four presents the result and discusses the finding while section five concludes the paper and offers some suggestions.
Theoretical Consideration
A banking system, which channels financial resources efficiently to deserving sectors of the economy, is a powerful mechanism for economic growth. As a key component of the financial system, banks play an important role in the financial system and the economy. They intermediate between surplus and deficit units of the economy and collect deposits from savers in order to channel them to borrowers. In the process of discharging this role, banks transform the quality of capital with respect to size, maturity and risk, thereby, reducing the cost of obtaining information about both savings and borrowing opportunities and in turn help to make the overall economy more efficient by raising the level of investment and savings, and increasing the efficiency in the allocation of financial funds in the economic system.
Theoretical literature documents that the more efficient fund or capital a bank matches, the more it would stimulate economic activities and in turn increase the demand for funds and capital to cater for the business activities in an economy. Such increase would eventually add to growth in GDP and bring about rapid economic development that would positively impact on the banking sector development via advanced financial intermediation.
According to the Federal Deposit Insurance Corporation (FDIC) (2005), bank capital performs several very important functions. It absorbs losses by allowing the bank to continue to operate as going concern during periods when losses owing to operation or other adverse financial results are experienced; promotes public confidence by providing a measure of assurance to the public that an institution will continue to provide financial services even in the event losses are incurred, thereby helping to maintain confidence in the banking system and minimize liquidity concerns. Also capital, along with minimum capital ratio standards, restrains unjustified bank asset expansion by requiring that asset growth be funded by a commensurate amount of additional capital; helps to minimize the potential moral hazard and promotes safe and sound banking practices.
Since the 1970s, review of capital base for banks has been a constant feature of most banking reforms in Nigeria. Ningi and Dutse (2008) identified four cogent reasons why the CBN has been expressing concern about capital adequacy of banks in Nigeria. Firstly, the industry has witnessed unprecedented competition in the 1970s and 1980s leading bankers to engage in sharp and unscrupulous practices not minding the risky nature of their business, which made the supervisory authority in particular to express concern over capital adequacy. The concern of CBN has been reflected in the continual increase in capital requirement for banks wishing to enter the industry. Secondly, as a result of persistent inflationary trend, the volume of banking business reflected in the total assets/liabilities of banks has increased phenomenally in recent years. As the assets diminish in relation to liabilities, if no addition is made to it, the CBN considers it imperative to gear up the minimum capital base of banks over the years.
Thirdly, the international business environment and the various sectors have become increasingly intertwined as a result of globalization. Consequently, the bankers have become exposed to risks not directly inherent in the business of the economy in which they operate. For banks in Nigeria to play safe, adequate capitalisation has always been given attention. Lastly, bank failures have become an important phenomenon in the economies of Europe, America and in fact, the world over since the early 1980 and the 1990s. Significant systemic banking crises have been experienced in East Asia, the US and Europe (Wilmarth, 2002 cited in Ningi and Dutse, 2008). Borrowing from the experiences of South Africa and Malaysia where the spate of bank failure phenomenon was tackled head-on through recapitalisation and consequently consolidation of the banking industry, the CBN fashioned its banking reform along that line.
Review of Empirical Literature
There are empirical studies that explicitly treated the relation between capital requirement and loan supply, which may be classified into two subsets. The first one, which includes Peek and Rosengreen (1995), Furfine (2001) and Chiuri et al. (2002), assesses the impact of higher capital requirements on loan size, comparing credit supply before and after the implementation of the policy intervention. The second one, which is best represented by Gambacorta and Mistrulli (2004), assumes capital regulation as given as it tries to infer its influence on bank lending, basing the empirical tests only in observations after the policy implementation.
The aforementioned researches are different as far as theoretical models, samples and proxies for capitalization are concerned; a common finding in all of them is a positive relation between capital indexes and credit supply. The results further revealed that negative shocks on bank capital may lead to reduction in loan supply and well-capitalized banks are less constrained by capital requirements and have more opportunity to expand their lending activities.
Supply of loanable funds is the most important factor that determines credit supply (Barajas and Steiner, 2002). Since liquid liabilities include deposits made by customers at banks, any policy that will lead to increase in deposits ceteris paribus should have a positive influence on bank lending (Gupta, 2003). This means that a positive relationship is between bank capitalisation and credit size under normal circumstance.
A number of studies on the effects of bank capitalisation on credit availability to borrowers used data from the U.S banks (Strahan and Weston, 1998). On the average, the studies reveal that an increase in bank capital base neither has a negative impact on the availability of loan to existing borrowers nor raises the investment-cash flow sensitivity of firms. In fact, Strahan and Weston (1998) and Houston et al (2001) found that borrowers of acquired banks tend to experience growth of credit in the first few years after one or more of their lenders were acquired.
Banks may find it difficult to keep to minimum capital requirements and thus may be forced to reduce lending size, given that the purpose of bank requirements is to limit the amount of risk that can be taken relative to capital. It is possible that banks may reduce the size of loan not because of capital constraints, but because of concerns about lending to particular risky sectors (Bank for International Settlements (BIS), 1999).
Two reasons may be responsible for the possible negative relationship between capital size and credit size. One reason is that smaller banks are constrained in lending while larger banks have access to a wider pool of borrowers and to a different mix of assets and financial products. Once the size constraint is eased, banks might shift their portfolios of loans in favour of larger borrowers or even shift their asset composition away from traditional lending activities. A second reason could be that in providing credit to small borrowers, characterised by large information asymmetries, small banks enjoy a cost advantage over other banks both in monitoring and loan origination. Once replaced by larger banks, the small ones tend to decrease the quantum of loan (G10, 2001).
Using cross sectional data drawn from New England over the period 1993 through 1994, Peek and Rosengren (1998) found that where a large bank takes over a small one, availability of small business loans by the target bank is lower than before the merger. Sapienza (2002) documented that in Italy – borrowers have a higher probability of being severed by banks that have increased their capital base through consolidation. Using a large sample for corporate borrowers in Italy, Bonaccorsi di Patti and Gobbi (2003) found that a merger or acquisition that causes a rise in shareholders’ fund adversely affects loan size, a finding that is consistent with the findings of Carow et al (2005).
There is some evidence for the US that certain sectors, particularly real estate, may have been affected by constraints on bank capital. Hancock and Wilcox (1998) and Peek and Rosengren (1998) examined the impact of an unexpected reduction in bank capital on credit availability and real activity in the US real estate markets. In addition, Hancock and Wilcox (1998) examined the impact of bank capital shocks on credit availability and real activity in the small business sector. Their empirical finding shows that commercial real estate lending is much more vulnerable to negative capital shocks than is single-family residential lending.
It should be noted that the literature has documented different approaches to estimating the effects of capitalisation on credit size. While some studies used capital size and credit size to assess the impact of the former on the later, other studies used capital base and deposit as independent and dependent variables respectively. Argument in favour of the second approach stems from the strong positive correlation between capital base and deposits. It is expected that the more capitalised banks are the more fixed assets they would acquire and branch expansion they would embark upon. The implication is that such banks would be able to mobilise more deposits than can be lent out.
Schmitz (2005) ran parallel regressions for bank deposits and loans against bank capital for unbalanced panel of 4400 individual bank balance sheets in Europe following the empirical approach taken by Peek and Rosengren (1995). He found that changes in deposits and loans were positively correlated with changes in capital. This suggests that loan supply is determined by the availability of capital. His finding also disclosed that lower capitalized banks show a stronger response to a change in capital than their higher capitalized competitors.
Dataset, Variable Specification and Methodology of Analysis
The source of data for this study was banks’ schedule contained in CBN Statistical Bulletins and Banking Supervision Reports. Logarithmic transformed CBN’s aggregated data on capital base and loans and advances of the entire Deposit Money Banks (DMBs) in Nigeria over the period of the study were used in line with the studies of Kahn (1991), Hensa (2000), Deutsche Bundes Bank (2005) and Schmitz (2005). Based on the hypothesis earlier formulated, the study postulates the functional relationship between capital base and loan size all after logarithmic data transformation.
The ordinary least squares (OLS) regression was employed to estimate the parameter of the following model:
LSIZELOAN = + βLCAPITAL + ut
Where:
LSIZELOAN
Logarithmic transformed data on size of loan
LCAPITAL
Logarithmic transformed data on capital base
, β
Parameters of the model to be estimated
ut
Error term, assumed to be white noise.
Result and Discussion of Finding
In this section, the result of the regression equation of the independent variable, LCAPITAL, and dependent variable, LSIZELOAN is presented. The full result is contained in the appendix.
Table 1 LSIZELOAN against LCAPITAL
Variables
Coefficients and t-values
Intercept
2.863
(14.275)
CAPITAL
713
(21.058)***
R2
0.98
Adjusted R2
0.97
F-Start
443.441***
Source: Author’s computation using SPSS. T-values are reported in parentheses
The above table relates LSIZELOAN (dependent variable) to LCAPITAL (independent variable). The model reveals a t-statistic of 21.058 that is significant at 1 percent. The adjusted coefficient of determination (R2) offers sufficient explanation of the variations in LSIZELOAN, as the value is 97 percent. Also, the value of the F-statistics is 443.441 with a p-value that is significant at 1 percent, indicating fitness of the model. The result shows that capital size has significant impact on the size of loan. That is, an increase in the level of capital base of banks translates into an increase in the size of loan to the economy as a whole.
From the result, the null hypothesis that bank capitalisation has no significant effect on loan size in Nigeria is rejected. In other words, the result provides evidence that capital base of banks has significant positive effect on the size of loan extended to borrowers over the period of the study. The result provides support to the study of Peek and Rosengren (1995, 1998), Strahan and Weston (1998), Berger et al (1995), Avery and Samolyk (2000) and Schmitz (2005) but contradicts the findings of Goldberg and De Young (1999), Sapienza (2002), Bonaccorsi di Patti and Gobbi (2003), Craig and Hardee (2004) and Carow et al (2005).
Conclusion and Recommendation
In view of the above finding, the study concludes that as far as the trend of bank total lending activities is concerned, bank capitalisation has significant effect in Nigeria over the period of the study. This implies that capital base upward review is important to the extent that it facilitates financial intermediation in the economy. It is however recommended that in line with the global trend, the CBN should consider the possibility of introducing capital base differential among banks rather than a blanket uniform capital base in order to allow smaller banks to carve specific market niches for better and more efficient intermediation.
References
Avery, R. B. and Samolyk, K. A. (2000). “Bank Consolidation and the Provision of Banking Services: The Case of Small Commercial Loans”, Federal Deposit Insurance Company Working Paper, 01.
Bank for International Settlements (1999): “Capital Requirements and Bank Behaviour: The Impact of the Basle Accord”, Basle Committee on Banking Supervision Working Paper, http://www.bis.org/publ/bcbs_wp1.pdf
Barajas, A. and Steiner, R. (2002). “Credit Stagnation in Latin America”, IMF Working Paper Series, wp/02/53
Beck, T. A., Cull, R. and Jerome, A. (2005). “Bank Privatization and Performance: Empirical Evidence from Nigeria”, Journal of Banking and Finance, 29, 2355-2379.
Berger, A. (1995): “The Relationship between Capital and Earnings in Banking”, Journal of Money, Credit and Banking, 27, 432-456.
Bonaccorsi di Patti, E. and Gobbi, G. (2003). “The Effects of Bank Mergers on Credit Availability: Evidence from Corporate Data”, Banca d’Italia Temi di discussione, 479.
Carrow, K., Kane, E. J. and Narayanan, R. (2005). “How Have Borrowers Fared in Banking Megamergers? Cemmap working paper, 09/02.
Central Bank of Nigeria (1998 - 2003): Annual Banking Supervision Report, www.cenbank.org.
Chiuri, M. C., Ferri, G. and Majnoni, G. (2002). “The Macroeconomic Impacts of Bank Capital Requirements in Emerging Economies: Past Evidence to Assess the Future”, Journal of Banking and Finance, 26, 881-904.
Craig, S. G. and Hardee, P. (2004): “The Impact of Bank Consolidation on Small Business Credit Availability”, Journal of Credit and Banking, 16 (4): 617-645 at www.sba.gov/advo/research/rs234tot.pdf
Deutsche Bundes Bank (2005). “Credit Growth, Bank Capital and Economic Activity, Monthly Report
Federal Deposit Insurance Corporation (2005). Risk Management Manual of Examination Policies, http://www.fdic.gov/regulations/safety/manual/section2-1.html
Furfine, C. (2001). “Bank Portfolio Allocation: The Impact of Capital Requirements, Regulatory Monitoring and Economic Conditions”, Journal of Financial Services Research, 20, 33-55.
Goldberg, L. G. and DeYoung, R. (1999). “Youth, Adolescence and Maturity at Banks: Credit Availability to Small Businesses in an Era of Banking and Consolidation”, Journal of Banking and Finance, 23, Feb., 463-492.
Group of Ten (2001). “Report on the Consolidation in the Financial Sector”, BIS Working Paper, Basle.
Gupta, P. (2003). “Determinants of Bank Lending and the Effects of Monetary Policy on Bank Lending in Developing Countries”, available at www.foreignaid.com/jde/submissions/Pranav%20Gupta.pdf
Hancock, D. and Wilcox, J. A. (1998): “The “Credit Crunch” and the Availability of Credit to Small Businesses”, available at www.ideas.repec.org/p/ucb/calbrf/rpf-282.html
Hensa, G. (2000). “Recent Trends in Deposit and Loan Growth: Implications for Small and Large Banks”, http://www.allbusiness.com/banking-finance/financial-markets-investing-funds/10618985-1.html
Houston, J. F., James, C. M. and Ryngaert, M. D. (2001). “Where do Merger Gains come from? Bank Mergers from the Perspective of Insiders and Outsiders”, Journal of Financial Economics, 60 (3), 285 - 331.
Kahn, G. A. (1991). “Does More Money means More Banks Loans? http://www.kc.frb.org/PUBLICAT/ECONREV/EconRevArchive/1991/3Q91KAHN.pdf.
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Peek, J. and Rosengreen, E. (1995). “The Credit Crunch: Neither a Borrower nor a Lender be”, Journal of Money, Credit and Banking, 27, 625-638.
Peek, J. and Rosengren, E. (1998). “Bank Consolidation and Small Business Lending: It’s not just Bank Size that matters”, Journal of Banking and Finance, 22, 799-819.
Sapienza, P. (2002). “The Effects of Banking Mergers on Loan Contracts,” Journal of Finance, 57: 329-368.
Schmitz, B. (2005). “The Impact of Basel I Capital Regulation on Bank Deposits and Loans: Empirical Evidence for Europe”http://repec.org/mmf2006/up.26107.1144341713.pdf
Soludo, C. C. (2006). “Financial Sector Reforms and the Real Economy”, www.cenbank.org/out/speeches/2006/Govadd3-8-06.pdf
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Appendix
Regression
[DataSet0]
COMPENSATION MANAGEMENT IN SOME SELECTED
PRIVATE SECTOR OF THE NIGERIAN ECONOMY
LAWAN, Umar
Lawan is a Lecturer at the Department of Business Administration, Bukar Abba Ibrahim University, Yobe State.
[email protected]
ABSTRACT
The satisfaction of employees in any work situation will no doubt determine the success or otherwise of an organisation. This paper concentrated on compensation management in some selected private sector of the Nigerian economy. The paper benefited from various views expressed in available literature with respect to compensation management. Accordingly, questionnaire was the bases of issues raised in this paper. Also, it is important to note that, the nature of data gathered makes quantitative analysis more appropriate to this paper. Thus, the paper found that employees are given adequate training to undertake their task, the reward accrued to them commensurate with their performance, and they also enjoys fringe benefit but they are not free to initiate idea that will improve their welfare. The paper recommends that, motivation has to be given prominence in the organisation. This will serve as a source of inducement for higher productivity, performance and feeling of security by the employee. The paper also recommends that plan objectives must be clearly articulated (participant must know what is being rewarded and why). And behaviours motivated by the plan must support the organisations culture and values.
Key Words: Compensation, Management, Private, Economy, Nigeria
Introduction
The best economic rewards are not substitute for responsibility or for the proper organization of the job. Yet, conversely non financial inceptives cannot compensate for discontent with economic rewards (Drucker cited in Adesanya, 2005). As often is the case, there is a complex range of factors which confronts a manager whenever he starts to think about pay. The sort of issues that he faces include determining and maintaining appropriate differentials between jobs determining and maintaining a way of rewarding individuals for their personal contribution, fixing rate of pay that will suit the company, employees and the external situation , thinking through the implications of having a work force divided by methods of payment into staff and weekly paid, working out the relationship between pay and fringe benefits in a way that suit the company and the employees, and keeping the whole edifice on the right side of the law (Hackett, 1979).
The satisfaction of employees in any work situation will no doubt determine the success or otherwise of an organisation. However, it is worrying to note that the methods by which firms or organisations reward their workers or employees have grown more and more complex over the years, mainly as a result of union demands for better pay and resentments on the part of the employees themselves. Much has been talked about the rising inflationary trends, down turn in economy and deplorable cost of living. Nowadays it is common to find workers demanding improvement upon the rewards given by organisations to be commensurate with their performance. In any private organisation employers and employees have certain expectations from
each other to fulfil individual obligations towards achieving corporate goals and objectives.
The objective of this paper is to explore the compensation management in some selected private sector of the Nigerian economy. With a view to examine the nature of training given to employees to undertake their task, compare the reward accrued to employees with their performance, identify the fringe benefits given to employees by the organisations, and to determine whether employees are free to initiate an idea that will improve their welfare or not.
The paper is divided in to five sections. Section one is the introduction as above, section two review literatures on the intrinsic/extrinsic controversy, section three describes the study’s methodology, section four discusses the result of the paper and section five contains the conclusion and recommendation.
The Intrinsic/Extrinsic Reward Controversy
Beer (1985) distinguished between intrinsic and extrinsic rewards within organisations. Intrinsic rewards are those rewards that are associated with the job itself. These rewards include the feeling of competence, meaningful contribution, personal development, growth on the job e.t.c. while extrinsic rewards are those rewards that are not associated with the work itself. They accrued to individuals from other sources in the organisation, including co-workers, informal groups and the formal organisation. Extrinsic rewards include financial rewards (salary/fringe benefit), profit sharing and incentive plans, professional and peer recognition, promotion, friendships, deferred compensation (e.g. stock option) e.t.c. The controversy over which one is important between intrinsic and extrinsic rewards in influencing behaviour and performance has been on for quite some times among the social scientists. Several of them believe is important to distinguish between the two types of rewards because rewards do not have a predictable influence on behaviour unless the individuals own goals and intentions are taken in to account.
Atiomo (1990) referring to lockett explained that individuals are very conscious decision makers with respect to their behaviours, and extrinsic rewards are seen as an environment event on performance is mediated by at least three interfering processes. (a) The individual’s perception or cognitions of reward (b) their evaluation of the rewards and (c) their own goal-setting and intention.
Lockett (1992) points out that in actual work situations employees are influenced by a combination of incentives. They receive instruction, they get knowledge of result in the form of feedback, they may compete with others for pay and promotion, and they get paid and sometimes participate in the decisions. No combination of these factors influence behaviour and performance independent of behavioural intentions set by the individuals in response to them.
In light of Lockett’s theory, Atiomo is of the opinion that, the intrinsic-extrinsic distinction may still be of use in understanding the influence of reward on performance. Specifically, intrinsic aspects of the job may most likely give rise to recognition, acceptance as reward for individual whereas less indirect means of influence such as praise, reprieve and money will not provide these rewards. That is the greater the degree to which a reward is an integral part of the job itself, the more likely it will be accepted as a goal by employees and therefore, the greater will be its influence on performance.
Lepper, Green, and Nisbett (1973); Lepper and Green (1975) argue that when both an intrinsic reward and extrinsic motivation are present for the same activity, the reason for engaging in the activity is over determined (which is called the “over justification effect”). In such circumstances, the extrinsic reward may supplant intrinsic motivation as the perceived purpose for engaging in the activity because the extrinsic reward is the more salient of the two motivators. Deci (1975); Deci, Cascio and Krusell (1975) using Cognitive Evaluation Theory (CET), also suggested that when individuals who are initially intrinsically motivated to perform an activity are confronted with an additional extrinsic reward, they eventually ask themselves why they are engaging in the activity. This evaluation of their purposes leads them to choose the more salient of the two reasons, extrinsic rewards, resulting in a reduction of intrinsic motivation. If the individual is later ask to engage in the same activity without the extrinsic reward, overall motivation decreases because intrinsic motivation for the activity was supplanted by extrinsic rewards.
Behavioural psychologist sharply disagree that extrinsic rewards undermined intrinsic motivation. They argued that the evidence of negative effects of extrinsic rewards on intrinsic motivation were artefacts of poor operations of the reward as reinforce a focus on short-term effects without consideration of overall reinforcement history, and neglect for the enormous amount of research showing that reinforcement makes behaviour more not less, likely to occur. Cameron and Pierce (1994); Eisenberge and Cameron (1996) form the basis for a powerful recent response from the behaviourist tradition. These scholars found that rewards undermine behaviour in rare and easily avoidable circumstances (i.e. when they are tangible, expected and not contingent on performance), usually had no effect on intrinsic motivation and could actually increase creativity.
This inference has survived and grown in strength for three decades. Deci, Koestuer and Ryan (1999b) concluded that, it is finally clear that the accepted reality of the undermining effect is in fact a reality after all. They stated that the findings in this literature are robust, engagement-contingent and completion-contingent rewards have a substantial and reliable undermining effect on intrinsic motivation. Rewards in the work place, and in the study reported here are contingent on engaging in and completing work. The belief in the undermining effect extends to the world of practice, as some authors argue strongly against the use of extrinsic rewards. For example, Kohn (1996) stated that it is difficult to overstate the extent to which most managers and the people who advices them believe in the redemptive power of rewards, but rewards typically undermine the very processes they are intended to enhance. Kohn further states, rewards punish– rewards have a punitive effect because they like outright punishment, manipulative.
Despite the strength and apparent merit of these claims, the debate continues about the reality and robustness of the undermining effect. A number of scholars and theoretical perspective have maintained that the effects of extrinsic and intrinsic rewards are not interactive, but generally additive. For example, Reiss (2000, 2004a) referring to Deci and Ryan (1985) explain that if people were motivated to learn and to play to feel competent and self determining, then individuals who place on above average value on competence or self determination also should show above average intrinsic interest in learning and playing. Although achievement motivated people place above average value on self determination, they are not necessarily curious, playful or achievement motivated (Reiss and Havercamp, 1998).
It seems safe to conclude that there are conditions under which extrinsic rewards undermine intrinsic motivation and under which performance- approach goals enhance motivation and achievement. It is also save to say that the disagreements between scholars studying the same phenomena – intrinsic motivation and extrinsic reward extend beyond the empirical evidence in to such areas as theoretical allegiance and perhaps even to belief about human potential and contextual influence on it.
Methodology
This paper benefited from information obtained from views expressed in the available literature with respect to management of compensation in private sector of the Nigerian economy. Accordingly, questionnaire was the bases of the issues raised in the paper. On this premise therefore, a total of thirty employees are randomly selected from banking industry, communication companies and transportation companies to serve as respondents. Also, it is important to note that the nature of the data and information gathered makes quantitative analysis such as simple percentage more appropriate to this paper.
Results and Discussion
Of the thirty questionnaires administered to employees, all questionnaires were filled and returned representing 100%. 60% regard the training given to employees to undertake their task as yes, while the remaining 40% as no. Thus, there is evidence to suggest that employees are given adequate training to undertake their task.
66.6% of the respondents said reward accrued to them at the end of the month commensurate with their performance, while 33.3% are of the opinion that, the reward accrued to them does not commensurate with their performance. This confirms that, the reward accrued to the majority of the employees in private sector commensurate with their performance.
73.3% of the respondents are not free to initiate idea that will improve the welfare of the staffs, while only 26.6% employees are free to initiate idea that will improve the welfare of the staffs. This shows that most of the employees in private sector are not free to initiate an idea that will improve their welfare.
80% of the respondents enjoys fringe benefit, while 20% are not enjoying fringe benefit. This shows that majority of employees in private sector enjoys fringe benefit given to them by employers.
On the possible ways by which compensation can be managed effectively in private sector, the respondents suggested that:
Employees doing similar work should receive comparable wages.
Adequate social welfare services should be provided in the organisation.
Variation in pay must be based on significant differences in responsibilities and required knowledge, skill and abilities on salaries paid by other employers in the market place.
There should be a healthy climate for management and union negotiation in the organisation.
The process for classifying and evaluating the relative worth of positions must be fair.
Conclusion and Recommendation
The study reported in this paper is an attempt to explore compensation management in some selected private sector of the Nigerian economy. As outlined in the introductory section, the satisfaction of employees in any wok situation will no doubt determine the success or otherwise of an organisation. Therefore, to ensure successful implementation, organisations should develop classification and pay strategies that are in alignment with the organisation mission. To do this, an organisation must first recognise the importance of developing pay practices within a framework that ultimately comes down to rewarding employees appropriately for the skills, intellect, innovation, energy and commitment that they bring to the organisation.
Accordingly, the following recommendations based on the result of the study are hereby offered:
There is a need to enhance the level of the workers productivity by the management; this will bring about positive effect on the fortune of the organisation.
Reward must be linked to organisation strategy.
Motivation has to be given prominence in the organisation. This will serve as a source of inducement for higher productivity, performance and feelings of security by the employee.
Plan objectives must be clearly articulated (participant must know what is being rewarded and why).
Behaviours motivated by the plan must support the organisations culture and values.
There is a need for management to give a constant training to employees so as to increase their learning power, prepares them for advancement and enhance their self respect.
Reference
Atiomo, A. S. I. (1990), Corporate Reward Structure and Organisational Effectiveness, Nigerian Journal of Personnel Management, Vol. 4, pp 13-26.
Beer, M. (1985), Human Resource Management a General Mangers Perspectives, text and ease, the free press, U.S.A.
Cameron, J. And Pierce, W. D. (1994), Reinforcement, Reward and Intrinsic Motivation: A meta-analysis. Review of Educational Research, Vol.64, PP 363-423
Deci, E. L. (1975), Intrinsic Motivation, Plenum, New York.
Deci, E. L, Cascio, W. F, and J. Krusell, (1975), Cognitive Evaluation Theory and Some Comments on the Calder and Straw Critique, J. Pers. Soc Psychol.
Deci, E. L, Koestner, R. And R.M. Ryan, (1999b), The Undermining Effect is a Reality after all, extrinsic reward, task interest and self determination, reply to Eisenberger, Pierve and Cameron (1999), psychological bulletin.
Deci, E. L. And Ryan, R. M (1985), Intrinsic Motivation and Self Determination in Human Behaviour, Plenum publishing company, New York.
Hackett, P. (1992), Success in Management: Personnel, John Murry publishers limited, London.
Kohn, A. (1996), Why Incentive Plans cannot Work, Harvard Business Review, September.
Lepper, M. R. And Green, D. (1975), Turning Play in to Work, effect of adult surveillance and extrinsic rewards on children’s intrinsic motivation. J. Pers. Soc. Phychol.
Lepper, M. R, Green, D. and R. E. Nisbett, (1973), Undermining Children’s Intrinsic Interest with Extrinsic Reward, a test of the “over justification” hypothesis. J. Pers. Soc. Phychol.
Lockett, J. (1992), Effective Performance Management, 1st ed, Kogan Page Limited, London.
Onasanya, S. A. B. (2005), Effective Personnel Management and Industrial Relations, revised edition, Centre for Management Development, Lagos.
Reiss, S. (2000), Who am I: The 16 basic desires that motivate our actions and define our personality, Teacher/Putnam, New York.
Reiss, S. (2004), Multi-Faceted Nature of Intrinsic Motivation, the theory of 16 basic desires, review of general psychology.
Reiss, S. And Havercamp, S. M. (1998), Towards a Comprehensive Assessment of Fundamental Motivation, factor structure of the Reiss profile, psychological assessments
CORPORATE TAXATION AND FINANCING DECISIONS: EVIDENCE FROM LISTED FIRMS IN THE NIGERIAN FOOD AND BEVERAGES INDUSTRY
Muhammad Liman MUHAMMAD
Dr. Muhammad is a Lecturer with the Department Of Accounting, Bayero University, Kano, Ph.D
[email protected]
Abstract
This paper examines the effect of corporate taxation on the financing decisions of listed companies in the Nigerian Food and Beverages industry. Data for the study was collected from documentary sources consisting of the annual reports and accounts of the sampled companies. Being both time series and cross-sectional, Panel data methodology was adopted for data analysis,. The Ordinary least squares, Fixed effects and Random effects were used to estimate the regression model. It is found that in spite of the tax benefits of debt, the companies were generally low-geared; however, corporate taxation influences their financing decisions. The findings of this study lend weight to both the pecking-order and trade-off models as fitting description of capital structure behaviour of the companies. The study recommends that the companies should not over rely on their retained earnings as a source of finance, but to explore other external sources, particularly the use of debt in order to benefit from its tax advantage.
Key words: corporate taxation, capital structure, trade-off theory, pecking order theory
Introduction
Since the seminal works of Modigliani & Miller (1958 and 1963) and the subsequent one by Miller (1977), several studies have been carried out on capital structure of firms and its determinants. What aroused the interest could not be unconnected with some of the basic assumptions by Modigliani & Miller (MM), one of which is that capital structure, that is, the financing mix is irrelevant where there are no taxes. This implies that the quantum of debt in relation to equity is of no effect to a firm’s value in the absence of taxes. Consequently, in different countries of the world, like the United States, United Kingdom, Italy, Japan, Korea, Canada, Germany and a host of others, studies have been conducted to examine the influence of taxation and other factors on capital structure or financing decisions of firms
In spite of the increasing interest and studies about corporate taxation and capital structure globally however, little or no concern has been shown to this issue in Nigeria. Therefore, while several determinants of capital structure including taxes have been found from empirical studies in other countries, very little is known about their empirical relevance and impact in Nigeria. This is because most of the international studies rely mainly on data from developed nations and few developing ones, but excluding Nigeria. Also, at the local level, studies about the determinants of capital structure, particularly the influence of corporate taxes have not attracted much attention of researchers. However, the determinants of capital structure in other countries as found by the studies cannot automatically be applicable to Nigeria largely as a result of socioeconomic differences
Previous works on this aspect in Nigeria like Otusanya (2006) is defective because he relied only on the opinions of managers and did not substantiate such opinions by examining the financial records of the companies to establish any relationship between corporate taxes and capital structure decisions of firms. Another work by Omole & Falokun (1999) failed to justify their standpoint that the low debt-equity ratio after liberalization may be attributable to lower tax costs as they have not offered concrete and empirical evidence to buttress their assertion. Most of the other works on Nigeria either did not directly investigate the effect of corporate taxation on the capital structures of companies (Adelagan, 2007 and Salawu, 2007) or examine the effect of corporate taxation but studied few companies drawn from several industries (Udoayang & Asuquo, 2008).
One peculiar and common attribute of these studies is that they do not have clear focus on a specific industry or some specific industries and, as a result, their findings are rather general and not definite about any industry or group of industries. Therefore, it remains to be seen clearly how corporate taxes affect the financing decisions of listed companies in Nigeria, with specific reference to the industry selected for investigation in this study. This necessitates a study in this aspect in order to determine if the situation reported in other countries is true of Nigeria, and particularly in the chosen industry.
Literature Review
While some empirical studies establish a positive relationship between corporate taxation and capital structure‚ there are those that find a negative relationship. Yet, some others document that there is no relationship between corporate taxation and capital structures. For example, in the studies by Long & Malitz (1983)‚ Bayless & Dittz (1994) and Barclay‚ Smith & Watts (1995)‚ they find that taxation plays an insignificant role in capital structure decisions. Though Udoayang & Asuquo (2008) analyze only four quoted firms in Nigeria using the OLS multiple regression technique, they find that corporate income tax has a positive impact on the capital structure of three of the firms. Engel, Erickson & Maydew (1999) test, among other things, the tax effect of redeeming the traditional preferred stock for trust preferred, which is treated as debt finance. They find that firms derive substantial net tax benefit when they substitute trust preferred stock for the traditional preferred stock. Rajan & Zingales (1995) investigate the determinants of capital structure decisions by public firms across the G-7 countries. Using maximum likelihood and a censored Tobit model to estimate their regression, they find that the use of debt appears to be higher in countries with higher corporate tax rate, suggesting a positive impact of corporate taxation on leverage. Similarly, Ely‚ Houston & Houston (2002) examine the link between a firm’s expected Marginal Tax Rate (MTR) and its use of preferred stock as an alternative to financing with long term debt. They conclude that the financing behavior of a firm is consistent with the goal of enhancing their tax benefit. Furthermore,
Gropp (2002) examines the impact of local taxes on the capital structure decisions of firms in Germany. The local taxes are those levied on profits of companies in addition to the Federal taxes. Gropp reports that taxes create substantial incentives for firms to use debt finance and, therefore, the taxes significantly influence capital structure decisions.
Gordon & Lee (2001) estimates the effects of change in corporate tax rate on the debt policies of firms of different sizes in the US between 1950 and 1995. They observe that the tax rates in the US vary across firms of different sizes, and the relative tax rates are not static, thereby providing substantial information and opportunity to identify the tax effects on financing decisions. They find that taxes have a strong and statistically significant effect on debt levels. Specifically, they show that cutting the corporate tax rate by 10% e.g. from 46% to 36%, and holding personal tax rates fixed, it could be forecast that the proportion of assets financed with debt will reduce by about 3.5%. However, they document that the positive tax impact is much smaller for intermediate-sized firms suggesting that the responsiveness to tax rate changes in capital structure decisions differs substantially by size of the firm.
Contos (2005) extends Gordon & Lee (2001) study using data from the same source, the US statistics of income (SOI), corporate income tax returns as well as from micro data files, and covering the period 1993 to 2000. When the weighted average marginal tax rate reported in SOI was introduced, Contos finds a negative effect of tax rate on debt level. However, using marginal tax rate constructed from taxable income before interest, Contos finds the expected positive relationship between tax rates and debt level for all the three firm sizes (small, intermediate and large). Contos conclude that their results are not qualitatively different from those of Gordon & Lee. Similarly, Gertler & Hubbard (1990) reports that distortion caused by the US tax system may be an important factor in creating a situation of excessive leverage because the tax deductibility of interest charges provides a major advantage of using debts. This is in consonance with the position of Swanson, Seetheraman & Srinidhi (2001) who argue that the major factor that encourages the use of debt is the tax subsidy on interest payments and, as a result, increased corporate tax rate makes debt more attractive. In the same way, according to Strulik (2005), a lower corporate tax rate reduces the advantage of debt finance.
Peles & Sarnet (1979)‚ Nadeau (1991), Givoly‚ Hayn‚ Ofer & Sarig (1992), Plesko (1994) and Smith (1997) use special opportunities following some forms of tax reforms to study the impact of taxation on the financial policy of firms. They all find that taxes play a major role in the financing decisions of firms. In the case of Peles & Sarnet‚ they examine the relationship between corporate taxes and capital structure of firms in Britain between 1961 and 1971 capitalizing on a major change in the British corporate tax law (Finance Act of 1965 effective in 1966). They divided the time frame into two periods‚ five years before the change and five years after the change as they observe that there was relative stability in macro-economic variables‚ particularly‚ the inflationary trend. They find that taxation has a pronounced impact on firm’s financial policy as the debt-equity ratio of the period after the change almost doubled that of before the change.
Nadeau (1991) estimates the impact of taxation on financial decisions of firms using the opportunity offered by the Tax Reform Act of 1986 in the US. Among other things, Nadeau finds that the Reform reduces corporate leverage. In the same manner‚ Givoly‚ Hayn‚ Ofer & Sarig (1992) study the effect of the US Tax Reform Act (TRA) of 1986 on the capital structure of firms. They opine that a major difficulty in establishing a relationship between taxation and capital structure has been how to control the intervening variables like the statutory tax rates which do not often change, but the opportunity offered by the reform has made the assessment of the interaction possible because the reform brought about a reduction both in the corporate tax rates and personal tax rates. Consistent with the tax-based theories‚ they report that firms with high tax rate prior to the reform reduced their debt level after the reform. Also, according to Plesko (1994), the Tax Reform Act of 1986 provides a natural experiment for analyzing the influence of taxes on corporate leverage decisions. Plesko notes that the centerpiece of the reform was the reduction of the maximum statutory corporate marginal tax rate from 46% to 34%. Plesko shows that the volume of corporate debt in 1988 is estimated to have been $312 billion lower than it would have been without the reform. Further‚ Smith (1997) investigates the effects of the Tax Reform Act of 1986 on the capital structure of foreign subsidiaries and finds that the US multinational companies increase the debt level of their foreign subsidiaries after 1986‚ while the non-US multinational companies do not.
Utilizing similar opportunity of tax reform, Podzena (1987) explores the role of tax policy in the financing mix as well as reasons for the rise in debt levels of the US non-financial corporations between 1935 and 1982. Podzena finds that the trends are attributable to the tax policy and concludes that the changes in the federal tax policy then would likely make the preference for debt financing to continue. Furthermore, Green & Murinde (2007) examine the impact of tax policy on corporate debt of unquoted companies in India. They find, among other things that tax policy plays a major and plausible impact on leverage decisions of firms as their effective tax rates have significantly likely co-efficient. They corroborate this finding by evaluating the impact of the 1990s tax reform in which tax rates were reduced considerably and they find the reform has substantially reduced outstanding unquoted companies’ debt by about 17%.
In a study of the effects of taxes on corporate capital structure in Korea, Choi (2003) finds that firms consider corporate tax benefit of debt in making financing decisions, and argues that as a result of recent changes in the tax system of Korea that reduce tax advantage of debt, firms have responded by reducing their leverage. On the whole, Choi concludes that taxes are a very important determinant of corporate capital structure in Korea. Mackie-Mason (1990) investigates the effect of taxes on corporate financing decision of firms in the US between 1977 and 1987, and concludes that there is clear and substantial tax effect on financing choices. Mackie-Mason finds that the desirability of debt financing varies with the effective MTR.
However, Faulkender & Petersen (2006) find mixed evidence on the empirical relationship between MTR and leverage, which is basically caused by the different definitions of leverage adopted. When leverage is defined as total debt divided by total assets, they find a negative relationship. As this result is unexpected, they redefine leverage as long-term debt to market value of assets and then find a positive result. Moreover, Gropp (1997) estimates the effect of expected corporate tax rates on the amount of debt issued by firms. Using ordinary least squares regression analysis and the US panel data between 1979 and 1991‚ the estimated measures of expected effective tax rates of firm are related to a continuous measure of incremental debt financing. Gropp finds that increases in the expected effective tax rates are significantly and positively related to a higher level of debt financing. However‚ Cordes & Sheffrin (1983), in their study‚ find that though there is an average effective tax advantage to debt finance‚ it is less than expected.
In a study of 128 Canadian companies by Shum (1996) for the period 1979 to 1989‚ it is found that corporate taxes have significant effects on the firms’ debt policy as the use of debt increases as past taxes paid increases. In contrast‚ Davis (1987) examines whether effective tax rates are determinants of capital structures of 250 Canadian firms. Using the Spearman rank correlation and Kendall W and a period of 20 years (1963 –1982)‚ Davis finds there is a positive relationship between leverage and effective tax rate, but the statistical significance is not consistent. While eight years of the period show high statistical significance‚ the remaining years indicate statistical insignificance. Similarly, Bartholdy, Fisher & Mintz (1989) investigate the influence of Canadian corporate tax rates on the debt-asset ratios of firms (1970-1982). They find that corporate tax rates have a strong, positive, and stable effect on debt-asset ratios (leverage).
Bauer (2004) investigates the determinants of capital structure of listed firms in Czech republic for 2000 and 2001 using ordinary least squares technique. Though Bauer uses a unique measure or a proxy variable to analyze the tax effects on leverage, that is, effective tax rate, which is defined as the difference between earnings before taxes and earnings after taxes scaled by earnings before interest and taxes, he finds, among other things, a positive relationship between effective tax rate and leverage. In the work of Dhaliwal‚ Heitzman & Zhen Li (2006), the association between leverage‚ corporate and personal taxes and firms’ implied cost of capital is examined. They document that corporate taxes consistently explain the association between leverage and cost of equity, and conclude that the linkage between capital structure and cost of capital is affected by taxes. However‚ Benito (2003), who investigates the capital structures of Spain and UK firms between 1973 and 1991 reports that corporate taxes do not play any role in their capital structure decisions. In an examination of the relative importance of 38 factors in the leverage decisions of publicly traded US firms, Frank & Goyal (2003), find no strong relationship between leverage and tax rates. In the same vein, Fischer, Heinkel & Zechner (1989) could not document any stable and significant tax effects on leverage.
Bartholdy & Mateus (2006) analyze the impact of corporate taxes on the capital structures for a large sample of small and medium-sized unlisted but manufacturing firms in Portugal for the period 1999 to 2000. They argue that though there is increasing evidence that taxes matter for capital structure ‚ the primary source of evidence is largely from listed US firms which because of their size advantage, are financially relatively sophisticated and have access to debt markets. This is not the same with small and medium firms and so, such results could not be generalized. They find that the existence of debt tax shields also has an important impact on the capital structure of small and medium-sized firms.
In a comprehensive study of the determinants of capital structure of the US firms, Taub (1975) finds that the tax rate variable consistently has a negative co-efficient suggesting that increases in the tax rate has a negative impact on the desired debt equity ratio. While this finding is inconsistent with both the traditional and MM views of capital structure, it is in accord with that of Negash (2001), who, using data from the Johannesburg Stock Exchange also reports a negative effect of tax rate on leverage. Furthermore, in the works by Opler‚ Saron & Titman (1997)‚ Vasiliou (2005) and Abor & Biekpe (2005) an inverse relationship is documented between corporate tax and debt ratio.
Unlike most other studies that focus on substantial number of firms‚ Graflund (2000) studies only a firm and the findings support a long run relationship between corporate tax variables and total debt level. Bontempi‚ Giannini & Golinelli (2005) measure the relationship between fiscal variables and companies’ debt choices in Italy‚ and find that the tax effects on debt-ratio are robust and significant. Using empirical model‚ Ju‚ Parrino‚ Poteschman & Weisbach (2005) conclude that the major factors affecting financing decisions are corporate taxes and bankruptcy costs. Yet‚ Huang & Ritter (2007) find that firms finance a larger proportion of their deficit with debt when corporate tax rate is higher. This is consistent with the trade-off theory (TOT) prediction that debt is used as a tax shield.
Methodology
This study applied a non-survey approach. The work involved the collection and utilization of documentary firm-level data from annual reports and accounts of the selected companies from the chosen industry for the period of twelve (12) years (1995-2006) under investigation. The study covers listed companies in the Food, Beverages, and Tobacco industry but only those firms that have been listed at least since 1994 and have remained in operation up to the end of 2006. In the absence of a tobacco company that qualifies for inclusion based on the stated criteria, the industry is thus referred to as Food and Beverages
The variables used in this study are categorized into two viz: (1) the dependent variables and (2) the explanatory or independent variables.
Dependent Variables: These consist of the following proxies of financing mix or capital structure: i) Total Debt-to-total assets (TDTA): This is total debt (long-term and short-term) over total assets as used by Upneja & Dalbor (2001), and ii) Total Debt to capital (TDC): This is measured by dividing total debt by the sum of total debt and equity as used by Ooi (1999).
Explanatory Variables: These consist of tax variables and control variables.
Tax Variables: These include the following:
i) Statutory Tax Rate (STR): This is the nominal tax rate fixed by the government and applicable to all companies operating within the shores of Nigeria or registered in Nigeria. The STR has been used by Negash (2001) and Bartholdy & Mateus (2006). ii) Effective Tax Rate (ETR): This is determined by dividing actual taxes paid by earnings before interest and tax (EBIT). This is employed as Davis (1987) and Graham (1996 & 2000) advise that, inconsistency with theory, the relationship between debt level and its tax benefit be determined using tax rates before the calculation of the effect of debt finance. iii) Tax loss carry forwards (TLCF): This is determined by dividing earnings before taxes by total assets as used by Frank & Goyal (2003).
Control Variables (Factors)
Though this study sets out to primarily examine the effects of corporate taxation on financing decisions, other non-tax factors commonly thought to drive capital structure policy are also accounted for as done in several similar studies by Givoly, Hayn, Ofer, & Sarig (1992), Shum (1996), Gropp (2002), Green & Murinde (2007) and Cheng & Green (2008). This is also in conformity with the extant theoretical and empirical work on capital structure. The variables included are: profitability, age, growth potential, size, tangibility and probability of bankruptcy. The measurement of each of these variables is discussed hereunder.
i) Profitability (PROF): This is measured by dividing EBIT by total assets. ii) Age (AGE): Age is a measure of reputational variable and informational transparency that might influence the willingness of creditors to lend their funds. As knowledge about a firm’s existence may be more when it is publicly traded and not necessarily how long it has existed, age is measured as the number of years since listing. This has also been employed by Upneja & Dalbor (2001).iii) Growth (GRW): This is measured by the change or annual growth rate in total assets. iii) Size (SIZ): This variable is measured by log of total assets. v) Tangibility (TANG): This is measured as total fixed assets divided by total assets. vi) Probability of bankruptcy (ZPB): This is measured using the Altman’s Z score provided by Altman (1984) but excluding the ratio of market equity to book debt. It is defined as:
ZPB = [3.3(EBIT) +1.0(sales) +1.4(retained earnings) +1.2(working capital)] /total assets This has been used in the studies by Mackie-Mason (1990) and Leary & Roberts (2005).
In analyzing the data, multiple regression technique using panel data methodology is employed as done in a similar study by Gaud, Jani, Hoesli & Bender (2003). This is chosen because the panel character of the data, that is, its combination of time series as well as cross-sectional attributes justifies the adoption of a panel data methodology. The effects of some explanatory variables and the control variables on leverage are only noticeable at least one year after their occurrence. Accordingly, such explanatory and control variables are lagged one year as done by Vasiliou (2005). In line with the variables identified and discussed, the empirical result of this study is thus based on the following regression model:
DRi,t= a1 + β2STRi,t-1+ β3ETR i,t-1+ β4TLCF i,t-1+ β5PROF i,t-1+ β6AGE i,t+ β7GROW i,t+ β8SIZE i,t+ β9TANG i,t+ β10ZPB i,t + Ei,t
The ordinary least square (OLS) is one of the methods used to estimate the regression equation. According to Abor (2005), OLS provides a consistent and efficient estimate of a and β. However, since pooled OLS assumes constant co-efficient for both the intercept (a) and slopes (β), the Fixed effects and Random effects estimators, which are common techniques for analyzing panel data are also employed.
Results and Discussion
Table 1 presents the descriptive results. It shows that the mean TDTA of the firms studied is about 15% while that of TDC is approximately 25% suggesting that the companies are not overleveraged.
Table 1: Descriptive Statistics of Dependent and Independent Variables
Variables
Obs
Mean
Std. Dev.
Min
Max
TDTA
89
0.1467
0.1530
0.0000
0.5670
TDC
89
0.2534
0.2928
0.0000
1.7010
STR
92
0.3087
0.0191
0.3000
0.3500
ETR
89
0.1625
0.1032
0.0000
0.4100
TLCF
90
0.2063
0.1327
0.0110
0.5540
PROF
90
0.2249
0.1283
-0.0270
0.5540
AGE
92
21.087
7.2334
2.0000
34.000
GRW
88
0.2389
0.2448
-0.1320
1.5500
SIZ
91
9.5520
0.7642
7.6200
10.710
TNG
91
0.3032
0.1661
0.0220
0.6850
ZPB
91
2.9895
1.1146
-0.6100
6.8700
The maximum STR, being a rate fixed by the government, is 35% and minimum is 30% for the period of the study. The mean ETR of the firms is about 16% of earnings before interest and taxes (EBIT). The sharp variation between ETR and STR is partly due to the fact that while STR is applied on the taxable profits ascertained in accordance with relevant statutory provisions, ETR relates actual tax payment to EBIT. In this case, EBIT would in most cases be higher than taxable profits and, as a result, ETR and STR would rarely be equal. The average TLCF for the companies is approximately 21%.of total assets, but it has a high volatility as the standard deviation amounts to 13%. The mean PROF is about 22% of total assets. PROF has a maximum value of about 55% and a minimum loss of 3% approximately. The volatility in PROF is also high considering the standard deviation of over 12% of total assets.
The mean AGE of the companies since listing is 21 years. Age ranges between a maximum of 34 years and a minimum of 2 years. A minimum of 2 years indicate that the company was listed two years before 1995, while the maximum of 34 years means that in a relevant year the company was listed for 34 years. The mean growth prospect (GRW) of the firms is about 24%. The maximum GRW is 155%, while the minimum GRW is -13%. This substantial difference between the maximum and minimum GRW is manifested in the standard deviation of more than 24%. On the average, the companies did not witness stable growth within the period of the investigation.
On the size, there is no wide variation between the companies as indicated by the standard deviation of 0.76 and a mean of 9.55. The proportion of tangible assets to total assets (TNG) of the companies is 30%, indicating that about 70% of the companies’ total assets constitute current assets and investments. The mean ZPB is about 3.0, suggesting a low probability of bankruptcy. However, the standard deviation of 1.11 and a minimum ZPB of -0.61 are signs of wide disperse in ZPB. This indicates that some firms exhibit high likelihood of bankruptcy.
Table 2 shows the correlation matrix of dependent and independent variables. The table shows that correlations are low except the correlations between TDTA and TDC as well as PROF and TLCF. Thus, the problem of collinearity, if any, has been minimized.
Table 2: Correlation Matrix of Variables
Variables
TDTA
TDC
STR
ETR
TLCF
PROF
AGE
GRW
SIZ
TNG
ZPB
TDTA
1.000
TDC
0.848*
1.000
STR
0.008
0.005
1.000
ETR
-0.160
-0.137
0.044
1.000
TLCF
-0.358*
-0.209
0.153
0.260*
1.000
PROF
-0.240*
-0.072
0.196
0.276*
0.952*
1.000
AGE
-0.159
-0.102
-0.332*
0.439*
0.180
0.168
1.000
GRW
0.151
0.043
0.370*
0.136
0.133
0.151
0.021
1.000
SIZ
0.382*
0.319*
-0.278*
-0.015
-0.153
-0.109
0.392*
-0.045
1.000
TNG
0.248*
0.216*
-0.117
-0.288*
-0.166
-0.201
-0.121
-0.179
0.626*
1.000
ZPB
-0.541*
-0.465*
0.075
0.431*
0.474*
0.479*
0.115
0.164
-0.443*
-0.528*
1.000
Since correlation only shows the relationship between variables and does not measure the effect of one variable on the other, inferential statistics, using panel data regression technique is employed and the results of the estimations are presented in Table 3.
Discussion of Regression Results
The results of the 3 estimation techniques are presented in Table 3. By coincidence, the results of OLS and Random effects are the same; nevertheless, they are all presented. As evidenced by the F-statistics/wald and corresponding P-values, the six models are validated. The p-values for the general model in each in each of the regressions are extremely valid, thereby proving their validity.
Table 3: Regression Results
IND VARs
DEPENDENT VARIABLES
OLS
Fixed effects
Random effects
TDTA
TDC
TDTA
TDC
TDTA
TDC
CONSTANT
0.3964
0.7949
1.1031*
1.6996
0.3964
0.7949
1.0600
0.9400
1.8000
1.2400
1.0600
0.9400
STR
-1.5960**
-1.8629
-2.8725***
-4.4443**
-1.5960**
-1.8629
-2.0200
-1.0400
-3.2500
-2.2500
-2.0200
-1.0400
ETR
0.2546*
0.3273
0.3473**
0.5331
0.2546*
0.3273
1.8500
1.0500
2.2400
1.5400
1.8500
1.0500
TLCF
-1.1390***
-2.8555***
-0.5037
-1.5345
-1.1390***
-2.8555***
-3.7600
-4.1500
-1.1500
-1.5700
-3.7600
-4.1500
PROF
1.1420***
3.2194***
0.3308
1.2844
1.1420***
3.2194***
3.6200
4.4900
0.6800
1.1800
3.6200
4.4900
AGE
-0.0087***
-0.0088*
-0.0270***
-0.0571***
-0.0087***
-0.0088*
-3.8300
-1.7100
-3.1800
-3.0100
-3.8300
-1.7100
GRW
0.1473***
0.1112
0.1404***
0.1479
0.1473***
0.1112
2.9600
0.9800
2.7800
1.3100
2.9600
0.9800
SIZ
0.0582**
0.0446
0.0674
0.1567
0.0582**
0.0446
2.1800
0.7400
0.9600
1.0000
2.1800
0.7400
TNG
-0.1442
-0.1222
-0.0236
0.1058
-0.1442
-0.1222
-1.3100
-0.4900
-0.1900
0.3900
-1.3100
-0.4900
ZPB
-0.0654***
-0.1318***
-0.0717***
-0.1723***
-0.0654***
-0.1318***
-4.4400
-3.9300
-4.3700
-4.7000
-4.4400
-3.9300
No. of Obs
86
86
86
86
86
86
R- Squared
0.5599
0.4246
-
-
-
-
F- value
10.741
6.231
4.05
3.95
-
-
Wald
-
-
-
-
96.67
56.08
P-value
0.0000
0.0000
0.0003
0.0004
0.0000
0.0000
R- Squared:
Within
-
-
0.3457
0.3402
0.2077
0.1919
Between
-
-
0.4104
0.2165
0.9630
0.8811
Overall
-
-
0.3235
0.1806
0.5599
0.4246
rho
-
-
0.7491
0.8075
-
-
F-value u_i = 0
-
-
2.58
3.02
-
-
P-value
-
-
0.0203
0.008
-
-
*** significant at the 1% level. ** significant at the 5% level. * significant at the 10% level The t and z-statistics are in italics
In the OLS estimation, the R2 of 42% and 56% for TDTA and TDC respectively indicate the percentage change in these measures of capital structure caused by the explanatory variables (tax variables and control variables). In all the estimations, the effective Tax rate (ETR) shows anticipated signs, and they are statistically significant under TDTA. The positive impact of corporate taxation (ETR) on capital structure or financing choice as reported under the Fixed effects is consistent with the trade-off theory (TOT) and empirical findings of Bartholdy (1989), Graham, Lemmon & Schallheim (1998) and Alworth & Arachi (2001). However, contrary to prediction, STR negatively impacts on capital structure, and the relationship is statistically significant in the Fixed effects estimation under both TDTA and TDC. In the OLS and Random effects, the significant negative effect of STR only occurs under TDTA. Though empirical studies by Taub (1975), Negash (2001), Abor & Biekpe (2005) and Contos (2005) have documented an inverse relationship between corporate tax rate variables and capital structure decisions, the negative coefficient of STR could be as a result of the fact that STR does not change frequently in Nigeria, and so ETR, which is derived from actual tax payment is a more effective measure of applicable tax variable.
There is a strong negative effect of TLCF on capital structure under the OLS and Random effects but an insignificant negative effect in the Fixed effect estimation. This relationship is in accord with the DeAngelo & Masulis (1980) hypothesis that as TLCF increases or as earnings of a business falls, less debt would be used. Also, PROF has strong positive coefficients under OLS and Random effects estimation. There is also a positive but insignificant effect of PROF under the Fixed effects. This result supports the trade-off theory that profitable firms use more debt in order to take advantage of interest tax shields.
In all estimations, AGE has positive and significant coefficients. Though this finding is in line with the prediction of trade-off theory that older firms use more debt because they are less susceptible to bankruptcy, it contradicts the pecking order theory (POT) of Myers (1984) and Myers & Majluf (1984), which posits that older firms have accumulated earnings and so would use less debt finance. GRW also has positive coefficients in all estimations but statistically significant under TDTA, an indication that as the growth rate increases, the firms tend to use more debt. This is consistent with POT that fast growing firms might exhaust their retained earnings and would resort to using more debt. Similarly, SIZ has positive coefficients generally and statistically significant under TDTA in the OLS and Random effects estimations. Thus, leverage increases with size. This lends support to TOT that since bigger firms are not often prone to bankruptcy, they are more financed by debt.
Though the coefficients are insignificant, in all estimations, except in the Fixed effects under TDC, TANG has negative effect on capital structure. These results contradict the predictions of both POT and TOT, but they are in agreement with the findings of Bauer (2004) and Abor & Biekpe (2005). A plausible reason for these results is that the debt or bond market has not been developed in Nigeria to encourage debt financing and take into consideration all the necessary criteria for granting credit, including availability of adequate collateral. It could also be because debt-holders treat the issue of collateral with levity. In the alternative, while tangibility is measured using the book value of assets, the value placed on such assets by the creditors might be based on professional valuation, which might invariably be different from book values.
Contrary to the predictions of the trade-off theory, but consistent with the finding of Leary & Roberts (2005), ZPB has significant negative coefficients in all estimations, indicating that as the likelihood of bankruptcy rises, leverage increases. This suggests that as the probability of bankruptcy reduces firms tend to use less debt, perhaps because they have accumulated earnings.
Conclusion and Recommendations
This paper examines the effect of corporate taxation on the financing decisions of listed companies in the Nigerian Food and Beverages industry for a period of 12 years (1995–2006). The study confirms a number of previous findings despite the geographical and sample differences. Thus, the capital structure decisions of the companies from the results show some level of consistency with a number of theoretical propositions. Specifically, the major findings of the study include: i) the companies are not awash with debt finance in spite of its tax advantages, perhaps because of the preference for high dividend payments; ii) corporate taxation affects the financing decisions of the firms; and iii) though there is mixed evidence in several instances, profitability, age, growth potential, size, tangibility, and probability of bankruptcy, are among the factors that drive the capital structure decisions of the companies. These findings provide evidence that the pecking-order and trade-off models are complementary in shaping the capital structures of the companies.
Based on the findings and conclusion drawn, the following recommendations are deemed pertinent:
The companies should not over rely on their internal equity, that is, retained earnings, as their major source of finance. They should embark on debt finance for its tax advantage of interest deductibility and also higher propensity to maximize value to shareholders.
There is need for an efficient and well developed debt market where debts can be traded just as stocks are traded in the Nigerian Stock Market. This should be initiated by the authorities in the Nigerian Capital Market like the Securities and Exchange Commission and the Chartered Institute of Stockbrokers.
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PREVIOUS PUBLISHED ARTICLES IN JOFAR
[Contact the Managing editor for copies]
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Military Spending and Employment Generation: The Nigerian Experience by Dr. C.I. Egwaikhide and J.O. Aiyedogbon.
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Government Expenditure on Social and Community Services and Economic Development in Nigeria by Dr. C.I. Egwaikhide and B.O. Ohwofasa
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Issues in Tax Assessment and Collection: Cross Country Experiences by A.D. Zubairu.
The Determinants of Bank Efficiency in Nigeria by Dr. G.B. Magaji.
Volume 1, Number 2
The Impact of the new Corporate Governance Code on the Nigerian Banking Industry by Dr. S.A. Abdullahi.
Detection of Earnings Management versus Transparency in Financial Reporting: An Experimental Study by Dr. G.A.N. Ama.
Financialization and the Real Sector of the Nigerian Economy by Dr. G.B. Magaji.
Global Financial Crisis: Nature, Origin and Lessons for Nigeria’s Monetary Policy by Dr. M. Oluba and U. Uwaleke.
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The Impact of Banking Sector Consolidation on the Real Sector of the Nigerian Economy by Dr. S.A. Abdullahi
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Internet Financial Reporting by Nigerian Deposit Money Banks by I.A. Olotu
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The Global Financial Crisis: Causes, Consequences and Cure By Mrs. B.F. Olarinde
The Impact of Finance Lease on the Profitability of Nigerian Banks by S.U. Hassan
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