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LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY IN NIGERIA
In this study, the researcher examined loan syndication as an alternative business financing strategy in Nigeria and this is the direct fall of insufficient fund for capital investment in the country. The objective of this study among others is to find out if loan syndication can be used as an alternative business financing strategy in Nigeria. The data for this study were collected with the aid of annual reports from 2002–2015 from five banks in Nigeria. The time series data which is a type of secondary data was used for the data analysis and interpretation of the hypotheses. Based on findings, the researcher therefore recommends that the business owner who intends to borrow should ensure that he has a certain percentage of fund contributed by himself set aside for the business minus what will be borrowed.
TABLE OF CONTENTS PAGE
Cover page i
TABLE OF CONTENT ix
1.0 Introduction 1
1.1 An overview of the study 1
1.2 Statement of problems 4
1.3 Objectives of the study 5
1.4 Research questions 5
1.5 Statement of hypothesis 6
1.6 Scope of study 6
1.7 Significance of the study 7
1.8 Limitation of the study 8
1.9 Definition of terms 9
1.10 Organization of the study 10
1.11 Summary 12
1.12 Reference 13
2.0 LITERATURE REVIEW 14
2.1 Conceptual framework of loan syndication as an
alternative business financing strategy in Nigeria 14
2.2 Theoretical literature review of loan syndication 34
2.3 Empirical literature review of loan syndication 41
2.4 Summary 53
2.5 Reference 54
3.0 Research Methodology 57
3.1 Introduction 57
3.2 Research design 58
3.3 Population and sample size 59
3.4 Sampling technique 60
3.5 Method of data collection 60
3.6 Techniques of data analysis 62
3.7 Model specification 63
3.8 Summary 63
3.9 Reference 6
4.0 Data presentation, analysis and test of Hypothesis 65
4.1 Introduction 65
4.2 Data presentation 65
4.3 Data analysis 73
4.4 Test of hypothesis 77
4.5 Summary 80
5.0 Discussion of findings, conclusion and
5.1 Introduction 82
5.2 Discussion of findings 82
5.3 Conclusion 84
5.4 Recommendation 85
5.5 Recommendation for Further Study 86
1.1 AN OVERVIEW OF THE STUDY
The insufficiency of fund for capital investment is a known common factor in every economy especially in developing countries of the world. In developing countries like Nigeria, the low level of capital investment manifests in high unemployment rate, low productivity and a corresponding low standard of living affects a greater majority of the population. Providing solution to this problem has been a major investment preoccupation of financial institutions in Nigeria. Beyond the traditional term loan, bonds, offers and so on, business organizations and financial institutions as well have sought out an avenue to tackle the problem of insufficient fund for capital investment.
One of the solutions they have come up with is loans syndication.
According to Peter S. Rose and Sykia C. Hudglus (2008), a syndicated loan consists of a loan package extended to a corporation by a group of lenders, the loans may be drawn by the borrowing company with the funds used to support business operations or expansions. A syndicated loan can also be defined as an agreement between two borrowers with credit facility utilizing common loan documentation. This study is centered on several variables which are loans and advances being the independent variable while debentures, ordinary shares and preference shares are its dependent variables.
Signoriello, Vincent J. (1991) defined loans as a debt provided by one entity to another entity at an interest rate and evidenced by a note which specifies among other things the principal amount, interest rate and date of repayment.
Advances are sums paid or received before the fulfillment of an obligation such as supply of goods or provisions of services.
Debentures are long term promissory note issued by a borrowing company to the lender acknowledging a substantial debt on which interest is earned, Oye Akinsulere (2002).
Ordinary shares are generally referred to as equity shares, they do not carry any fixed rate of dividend right.
Preference shares normally carry prior right as regards participation in the sharing of profits or in the return of capital and generally carry specified rates of dividend.
In Nigeria, loan syndication can be traced to the 60’s when a consortium of the commercial banks and acceptance house discounted trade bills for the marketing board under the produce bill financial scheme. Although formalize loan syndication came into been during the oil boom of the 70’s where there was need for adequate capital to finance the industrialization programme. Currently, there exist no comprehensive enacted law on loan syndication in the country as to regulate the activities of the financial institutions that load the lead bank and participants in the syndication.
1.2 STATEMENT OF PROBLEM
There are conflicting views as to whether business organizations should be financed by syndicated loan or not.
The opposition to the use of the alternative especially in Nigeria argues that syndicated loan is expensive and involves much administration work.
Also, a review of the role of financial institutions in financing Nigeria business organizations through syndicated loan is of paramount importance. From the above presentations, the following are the statement of the problem;
a) The effect of loans and advances on ordinary shares
(b) The issue of loans, advances and preference shares
(c) The impact of loans and advances on debentures.
1.3 OBJECTIVES OF THE STUDY