IMPACT OF FINANCIAL CONSTRAINTS ON FIRMS INVESTMENT DECISION MAKING IN NIGERIA

 

INTRODUCTION

The study’s main objective is to analyze the financial constraints and investment choices made by businesses in Nigeria. The study aims to identify several financial restrictions that have an impact on the investment choices made by organizations. The information was obtained from the financial sheets of nine (9) manufacturing companies that were listed on the Nigerian Stock Exchange from 2008 to 2012. The relationship between business size, dividend payout ratio, firm age, capital stock, debt, cash flows, and investment has been examined using multiple regression analysis. The empirical results demonstrate that the firms’ investments are significantly impacted by changes in their cash flows or retained earnings because these factors positively affect investment. The empirical results also demonstrate a positive relationship between firm size and investment as well as debt, but a negative relationship between firm age, capital stock, and investment. Additionally, it states that there is a bad correlation between the investment and the dividend payment ratio. The study came to the conclusion that there are financial limits in the market, which shows that the enterprises cannot access external sources of finance.

Furthermore present are asymmetric knowledge problems, agency costs, tax exhaustion costs, and other issues between the corporation and its financier.

So, it was advised that businesses choose an ideal dividend option that has little impact on their choice of investments. In order to increase their debt capacity, businesses should choose a strategy that involves taking on only moderate amounts of debt while overinvesting.

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