The Impact of Financial Reporting on Investment Decisions of Small and Medium Enterprises in Nigeria
CHAPTER ONE
Objectives of the study
The purpose of this project work is to determine the impact of a financial report on investment in SMEs in Nigeria.
- To assess the effect of statement of financial position on investment decision.
- To examine the effect of comprehensive income statement on small and medium enterprise.
- To evaluate the effect of ratio analysis on investment decision.
- To determine the importance of investment decision in small and medium enterprises.
Chapter Two
Review of related literature
Small and Medium Scale Enterprises in Nigeria
SMEs have been variously defined by many institutions in Nigeria and such definitions have regularly been revised from period to period. Each of these definitions has been defined on the basis of size of investment, annual turnover and number of employees. The institutions listed below gave their various definitions of SMEs relative to Medium Scale Enterprises (MSE), Small Scale Enterprises (SSE) and Micro Enterprises (ME). There is however no consensus in the definition. The Federal Ministry of Industries sees SME’s as enterprises that have capital less than N200m and total employees less than 300. Whereas SSEs are regarded as companies with total assets less than N50m and employees less than 100 and MEs are companies with less than 10 employees. According to the Central Bank (1998) Mediums scale enterprises are companies with operating assets less than N150m. annual turnover less than N150m and less than 300 employees. It regards small and medium scale enterprises as those companies with operating assets less than N10m with annual turnover less than N10mand less than 100 employees. The National Economic Reconstruction Fund (NERFUND) (2000) sees SME’s as companies with operating assets less than N40m, with annual turnover less than N40m and with 3-35 employees.
Financial Reporting Practices in Small and Medium Enterprises
Despite the importance of financial reporting and analysis, it is unfortunate to find that these practices are often inadequate and lacking among SMEs. This rather limited usage of financial reports could be attributed to SMEs’ inability to employ professional managers with functional specialization especially in the financial area due to their limited financial resources. Without adequate, effective and timely financial reports and analysis, the SMEs are losing out on the benefits from those practices such as improved monitoring of financial health and progress, improved ability to anticipate fortunes or failures, better assessments of financial risks and greater ease in financial planning and control. According to Holmes (1991), most importantly, in the context of SMEs requiring extra capital to grow, regular financial reports can provide indications on their ability to produce steady cash flows and to service debt. It has been established that the use of appropriate financial reporting and management accounting practices could be one of the determinants of company survival particularly SMEs (Gorton, 1999; Holmes, 1991). Accounting information signals that decisions are needed, and provide information useful to making decisions (Gibson 1963) Accounting information is used to assess the profitability of alternative courses of action, measure performance, and evaluate the position of enterprises in term of profitability, liquidity, activity and leverage.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the impact of financial reporting on investment decisions of small and medium enterprises in Nigeria. Edustores, Ibadan form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of financial reporting on investment decisions of small and medium enterprises in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the impact of financial reporting on investment decisions of small and medium enterprises in Nigeria
Summary
This study was on the impact of financial reporting on investment decisions of small and medium enterprises in Nigeria. Three objectives were raised which included: To assess the effect of statement of financial position on investment decision, to examine the effect of comprehensive income statement on small and medium enterprise, to evaluate the effect of ratio analysis on investment decision and to determine the importance of investment decision in small and medium enterprises. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from edustor, Ibadan. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Basically, the primary concern in SME financial reporting generally relates to preparation and use of general purpose financial reports such as the balance sheet, the profit and loss statement, and the cash-flow statement. The Poor record keeping, inefficient use of accounting information to support their financial decision-making and the low quality and reliability of financial data are part of the main problems in financial management concerns of SMEs. The reality is that in the structure of the reporting terrain for SME’s as circumscribed within what may be considered as a continuum of motives for reporting. The owner-manager decisions regarding financial reporting are multifaceted which influences the extent of financial accounting practices adopted and there appear to be a variety of explanations for why this may be so. The study concludes that with the introduction of IFRS for SME’s, the bar has been raised for SME’s financial reporting. Hence there is an urgent need for capacity building especially for SME’s to equip them with current expectations and the skills needed for effective reporting
Recommendation
Since keeping proper books of account and preparation of financial records can only be done by professional accountants, the two main professional bodies in Nigeria; ICAN and ANAN should encourage their members to offer free professional services to MSMEs in Nigeria. Commercial banks should also have a unit manned by professional accountants to assist SME in documentation for easy access to loans. The newly formed National Council on SME should be replicated up to community level and its creation should be given immediate legislative backing. The migration of SMEs financial reporting system to IFRS in 2014 should be adjusted to the next five years to enable the SME fashion out a way to cope with the manpower requirements. Banks should increase the grant of credits to SMEs in Nigeria
References
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- Dixon, T., Thompson, B. and McAllister, P. 2002. Report for Small Business Service Research Programme. http://www.berr.gov.uk/files/file38315.pdf. Date of access: 23 April 2009.
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- Gorton, M. (1999): Use of financial management techniques in the U.K. – based small and medium sized enterprises: empirical research findings. Journal of Financial Management & Analysis, Jan-Jun, 12 (1), pp. 56-64.
- Hall, G. and B. Young, (1993): “Factors Associated with Small Firm Insolvency,” in R. Atkin, E. Chell and C.Mason (eds.) New Directions in Small Business Research, Aldershot: Avebury.
- Holmes, S. (1991). Small business financial management practices in North America: a literature review, Journal of Small Business Management, 29(2), pp. 19-29.
