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Abandonment of Capital Investments and Survival of Small and Medium Enterprises: Evidence from Nigeria

Author

Listed:
  • Sehilat Bolarinwa

    (LAGOS STATE UNIVERSITY)

  • Babatunde Yusuf

    (LAGOS STATE UNIVERSITY)

  • Khadijah Idowu

    (LAGOS STATE UNIVERSITY)

  • Jamiu Tijani

    (LAGOS STATE UNIVERSITY)

Abstract

This paper presents empirical evidence on the impact of abandonment of capital investments on the survival of small and medium enterprises (SMEs) in Nigeria. It employs mixed methodological framework to question the extent to which abandonment of capital investments affects the performance of SMEs in five districts in Lagos. The study adopted survey inferential design. A total of 250 questionnaires were administered to different sets of enterprises, out of which 220 valid responses were received representing 88 per cent. Moreover, judgmental sampling technique was adopted for the purpose of this study. To validate or give further support to the results from specific data sources, triangulation method was used. This method includes both qualitative and quantitative phases. Content validity was adopted. Data gathered from the questionnaire were analysed with the aid of descriptive statistical techniques (such as standard deviation and arithmetic mean) and inferential statistical techniques (Regression analysis and ANOVA). Furthermore, multivariate analysis of factor analysis and its constituent tests were equally employed. Findings related to the study clearly show that the performance of SMEs is characterised by numerous problems including: lack of proper and effective capital budgeting mechanism, failure to access loan, lack of funds, strict banking policies, unethical business practices, lack of stable business policy, among others. The study also discovers that poor capital budgeting practice impacts on the survival of SMEs in Nigeria. The main contribution of this paper to knowledge lies in capital budgeting decision and abandonment option. This has strengthened our understanding that abandonment of capital investments is a critical factor in explaining SMEs survival in Nigeria.

Suggested Citation

  • Sehilat Bolarinwa & Babatunde Yusuf & Khadijah Idowu & Jamiu Tijani, 2014. "Abandonment of Capital Investments and Survival of Small and Medium Enterprises: Evidence from Nigeria," Proceedings of Economics and Finance Conferences 0401626, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:0401626
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    References listed on IDEAS

    as
    1. Alexander A. Robichek & James C. Horne, 1967. "Abandonment Value And Capital Budgeting," Journal of Finance, American Finance Association, vol. 22(4), pages 577-589, December.
    2. David B. Ekpenyong. & M.O. Nyong, 1992. "Small and medium-scale enterprises in Nigeria: their characteristics, problems and sources of finance," Working Papers 16, African Economic Research Consortium, Research Department.
    3. Catherine Fuss & Philip Vermeulen, 2008. "Firms' investment decisions in response to demand and price uncertainty," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2337-2351.
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    5. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    6. McPherson, Michael A., 1996. "Growth of micro and small enterprises in southern Africa," Journal of Development Economics, Elsevier, vol. 48(2), pages 253-277, March.
    7. Bonini, Charles P., 1977. "Capital Investment under Uncertainty with Abandonment Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(1), pages 39-54, March.
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    More about this item

    Keywords

    Abandonment; Capital Investments; Survival; Capital Budgeting Theory; SMEs;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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