Critical Evaluation of Small Business Financial Strategies in Nigeria: A Panel Study

摘要

This article evaluates the application of various financial strategies in small business in Nigeria, using panel study. The study was predicated upon the growing problem of financial dualism on account of the need to converge financial policies of large corporations and small enterprises. The study concentrates on financing strategies and identified five broad-band strategies for financing small businesses: debt, external equity, convertible preference capital, retained earnings, and financial bootstrapping. Fixed effect panel data regression models were formulated with each of the financing strategies serving as independent variable. The motive was to identify the contribution of each variable towards a suitable performance indicator for small businesses. To that extent, return on capital employed (an accounting-based indicator) and enterprise value (market-based indicator) were preferred. This further implied the formulation of two models, with two separate dependent variables (ROCE and NAV) while having the same set of independent variables. The results were evaluated wholly and individually using F-test and t-test respectively. Rejection criterion was set at p≤0.05. 400 data units were generated from a cross section of twenty small businesses spread in major cities, especially, in the southern region of Nigeria, and for a time period of twenty years, resulting in 20 by 20 panel study. It was found that financial bootstrapping strategy offers the most impact on small business financing. It was concluded that the emerging pecking order appears thus: financial bootstrapping, retained equity, external equity, convertible preference capital, and finally, debt capital. This was slightly subverted in the case of ROCE where debt financing ranked second on account of the inclusion of working capital in determining ROCE.