FINANCING PATTERN AND CAPITAL INVESTMENT BEHAVIOUR OF NIGERIAN FIRMS : A CASE STUDY OF 50 FIRMS QUOTED ON THE STOCK MARKET
FINANCING PATTERN AND CAPITAL INVESTMENT BEHAVIOUR OF NIGERIAN FIRMS : A CASE STUDY OF 50 FIRMS QUOTED ON THE STOCK MARKET
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Date
1999-02
Authors
OYEWALE, ADEBAYO OJO
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Abstract
ABSTRACT
The financing pattern based on the sources and uses of funds, for 50 firms
quoted on the Nigerian stock exchange listing was examined. Overall internal finance is
far less important than external finance as a source of finance for the Nigerian firms
studied. The order of financing being external debt followed by external equity and
internal finance a distant third. This finding negates the financing hierarchy hypothesis
that the firm's preference for sources of finance run from internal finance to external
debt to external equity.
External borrowing consist mainly of term-loans from financial institutions and
working capital loans from commercial banks; with debentures contributing far less as
a source of funds for a large percentage of the firms.
The financing of capital expenditures appears to be done primarily through
internal finance; and external finance plays a limited role with regards to capital
expenditure. This is in agreement with the managerial theory of investment which state
that the fundamental determinant of investment is the availability of internal finance;
which is the most accessible part of the capital market and most amenable to
managerial control. As such majority of the firms restrict their capital expenditure to
within the internally generated funds.
The positive relationship between cash flow (internal finance) and capital
investment is evidence by the high percentage of firms with positive financial slack.
The financial pattern and capital investment behavior seem not to vary significantly
over the year range for which this study was conducted.
Description
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF ADMINISTRATION
AHMADU BELLO UNIVERSITY
ZARIA.
Keywords
FINANCING,, PATTERN,, CAPITAL,, INVESTMENT,, BEHAVIOUR,, NIGERIAN,, FIRMS,, CASE,, STUDY,, FIRMS,, QUOTED,, STOCK,, MARKET.