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LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY IN NIGERIA

ABSTRACT

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

Title                                                                                           ii

Declaration                                                                               iii

Certification                                                                             iv

Dedication                                                                                v

Acknowledgements                                                                 vi

Abstract                                                                                     viii

TABLE OF CONTENT                                                             ix

CHAPTER ONE                                                        

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

CHAPTER TWO                                                                     

2.0    LITERATURE REVIEW                                                14

         INTRODUCTION                                                             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

CHAPTER THREE                                                                

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

CHAPTER FOUR                                                                    

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

         References                                                                       81

CHAPTER FIVE                                                                     

5.0    Discussion of findings, conclusion and

         Recommendations                                                          82

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

         Bibliography                                                                    87

         Appendix                                                                          91

 

 CHAPTER ONE

INTRODUCTION

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

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