What is finance, capital structure & Capital
Debt and Equity Mix
Capital management in a Contemporary Business
Causes of Corporate Failure in
External (Environmental) Factors
Effects of Corporate Failure in
Signs of Corporate Failure
Steps to take to avoid Corporate Failure
Research Design and
Primary Sources of
Secondary Sources of
Questionnaire Method and Its
Sampling Population and Sample
Determination of Sample
Method of Data
Method of Data
Finding Conclusion and
BACKGROUND OF THE STUDY
The Nigeria Economic Crises, which has persisted up to this 1999, got to its
peak in 1989. The effects then had seen that of gross underutilization of human
and material resources, how level of operations and out right corporate
Virtually every industry in the Nigeria economy has suffered one form of a
problem or the other. The banking industry through it controls the greatest
financial resources in the economy experienced and is still experiencing its
own share of Decree of 2000 construction industry has enjoyed continuous
negative growth trends, manufacturing industry amongst other was not spared.
Prior to the economic crises was the decade of economic Joom (1970 –
1980) which saw the dominance of the oil sector accounting for up to 80%
of the total foreign exchange earning in 1985 and 90% in 1999. During this
decade, Nigeria had the singular good fortune of benefiting from the
skyrocketing. Oil prices being of member of organization of Petroleum
Exporting Countries (OPEC). The failure of government planning machinery to
channel these vast resources into other investment pool culminated into serious
problem the economy is facing.
This lapse resulted into inflationaring pressures manifesting itself in
escalating prices, shortage of basic goods and service low income per capital,
high unemployment rate, with many industries shut and a host of them producing
at far below installed capacity (Baffa S.S. 1999).
A period of Recession is this period when firm failures is high pronounced
research “a recurring period of decline in the total output income, employment
and trade, usually lasting six months to a year, and marked by widespread
contraction in many sectors of the economy.
These negative economic trends continued until the introduction of Structural
Adjustment Programme SAP in 1999. The economy had witnessed serious internal
and external disequilibria and structural imbalances, such that all economic
indicators like inflation rate, Gross Domestic Product (GDP), employment rate,
idle capacity. In industries amongst other attested to this fact as there were
It was against their background that Structural Adjustment Programme (SAP) was
introduced with the intention of reforming the structural pattern and
restructure the productive base of the economy, in order to ensure
viability and sustained growth. These, however made it inevitable for
restructuring of corporate bodies to ensure survival in business. To make these
possible, most companies had rolled off liquidated, some were on the verge of
rolling off. The surviving ones were those that restructured and adjusted
extensively to accommodate the new precept of economic change. These were done
with great economic cost and difficulties. Structural Adjustment Programme on
its own has been a blessing in disguise in that it has brought with itself
reliance. Viability, prosperity and sustained growth.
All these have lent credence to the fact that slow growth and subsequent
failure of an enterprise often depends to a large extent, on its financing,
structure and its implication for financial risk.
It is therefore hoped that this little efforts made in this project will
contribute in no small measure to increase the knowledge of how to curb
corporate failure while establishing a workable capital structure (Ama G.A.
OF THE PROBLEM
Corporate problems perhaps
started with the “oil boom”. During the era adequate financial decision were
hardly taken, investments were no made, and where it was never considered.
Specifically most firms failed due to some factors such as capital shortage
unskilled labour, poor management team, rigorous competition and excessive
government control which hampered raw material procurement.
In Nigeria, firms that could
not source their raw material locally ran into serious problems and a
considerable number of them started to produce below installed capacity. Infact
it is estimated that not less than one hundred and forty firms failed during
this period. The negative effect is still being felt today (2002) depending on
government policies and implementation.
Apart from the problems
mentioned above, most of the firms failed as a result of over trading,
undercapitalization, poor research methods and excessive investments in fixed
asset leading to little or nothing for working capital.
Reactivation of some of these
companies has been in progress with varying degree of success. Most of them
have acquired one from of assistance of the other, while some have sold off
unproductive fixed assets, other have sold some part of their accumulated debt
for ownership proportion (debt equity shares) in the firm. In all there still
exist some problem like inadequate funding and inability to source for
materials locally. Also there is problem of an acceptable capital mix and
creditors refused to some restructuring schemes (proposals). The issue of
interest rates (until the ceiling policy by government since 1995 till date has
not helped matter. Cost of funds has however continued to move upwards when you
consider all factors involves.
The researcher tries to find
out the adequacy capital restructuring as a viable solution to corporate
failure (Ojo O. A. 1992).
1.3 OBJECTIVE OF THE STUDY
To identify causes of corporate failure
To identify the effects of corporate failure
To examine the problems of Corporate failure
To find out whether the use of capital restructure ids an adequate tool for
resuscitating ailing firms.
To find out whether the competition from the multinational companies contributed
to the bearing in mind their disadvantages.
1.4 SIGNIFICANCE OF THE STUDY
Opportunities usually exist for new investment outlets however, most firms due
to obvious financial incapacity and other extraneous factors are unable
to utilize such. This study is aimed at enabling firms, inspite of their
imbalanced position and other structural disadvantage to still exploit good
investment opportunities post restructured. It is also a prudent and judicious
financial mix benefit maximized to affect increased profitability and growth.
Moreso, the society in which the firm exist also benefits (in so many)
revitalized, for instance, good amenities are provided by such firms, in the
surrounding environment (business social responsibilities) employment
opportunities are also create development is brought nearer to the people
living near the situated firms benefits a lot.
Government: The firm pays its corporate tax to the government, which are in
turn, used for the advantage of the citizenry. And most of the improved goods
and service are made available to the customers for purchase at relatively
cheaper price by such firm. Also when such firm are established, government
usually collect different types of taxes which is also a source of generating
revenue for the government (Adegbite S.I. 1994).
1.5 RESEARCH QUESTIONS
In order to carry out the research effectively and make appropriate
recommendations, the researcher attempted to answer the following questions:
What are the causes of corporate failure?
What are the effects of corporate failure?
Is the use of capital restructuring an adequate tool for resuscitating
Does the unfair competition from the multinational companies contribute to the
failure of indigenous companies bearing in minding the disadvantages?
1.6 RESEARCH HYPOTHESES
The following hypothesis are considered for the study.
Ho: An articulate and well prepared financial
management policy will prevent
corporate failure and bring about increased performance among enterprises.
Hi: An articulate and well prepared financial
management policy will not
prevent corporate failure and would also not bring about increased performance
Ho: There is a positive correlation between efficient
capital application among firms
and growth in the economy and increase (improved) welfare of the citizenry.
Hi: There is a negative
correlation between efficient capital application among firm and growth in
economy and increased and improved welfare of the citizenry.
Ho: The size and growth rate of firms in both private and public sectors,
manufacturing and service industries, are inversely functions of its financial
management. Appropriately timed and adequately injected capital.
Hi: The size and growth rate of
firm are not functions of their financial management and capital
Ho: Lack of capital is not necessarily. The only cause of corporate failure
because other factor such as government policy bad management, general recession
could cause corporate failure among firms.
Hi: Lack of capital is the only
cause of corporate failure among firms.
1.8 PLANS FOR THE DEVELOPMENT
This research is organized in a sequence that would make it easy for the reader
to digest and apply. The research is organized in five chapters.
Beginning with background of the study in chapter one to the objective of the
study, limitation and assumption, up to the research method adopted and
research questions and hypothesis are all arranged in a way that would sound
rhythmic and very expository.
The chapter two deal with the review of related literature from the prelude to
The nature of the design of the research wok and the methodology of collection
and analysis of the data contained here in are all contained in chapter three
of this 100.
Chapter four deals with the data presentation analysis and interpretation. It
also deal with the interview question analysis.
The finding of this research work, its summary and the conclusion are in the
last chapter, chapter five. It is in this chapter that the researcher made
efforts to make recommendation in respect of people who are about to venture
into similar firms.
Finally, the appendices contain the questionnaires accounting method and even
the introductory letter.
1.9 DEFINITION OF TERMS
The following terms are defined
and explained in order to lend clarity and remove any ambiguity as well as to
enhance understanding of the entire text
They are –
Optimum capital and
Corporate Failure: Failure in a company, firm or corporation may mean
technical insolvent if it is unable to meet its current insolvency denotes only
lack of liquidity. Corporate failure in bankrupting means that the liabilities
of a company exceed its assets, otherwise put it means the net worth of the
company is negative. Corporate failure includes the entire range of
possibilities between these extremes.
Restructure: To give new structure or arrangement to organization procedure or
practice financial restructure is to remodel the form of financial
input/application in a firm in order to yield more returns on uses financial
management. This is largely the policy of the company and the exploitation of
the working capital. Cash flow, inventory control gearing policies as well as
granting of credit facility in line with adequate cover to avoid the incidence
of bad and doubt account and management effort to consolidate the working
Overtrading: Poor management of expansion plans. This occurs when the
management of firms fail to recognize its capital base, cash flow and annual
plan while engaging in both new and old ventures. It should always be based on
realistic forecast and optimum profit. Inverse relationship should always serve
as a guard to company managers to avoid overtrading.
Gearing: This is the ratio of equity capital of a company in relation to
the loan capital. A company with high gearing at inceptions on expiration of
granted moratoria would start paying high interest and thereby weaken its
profitability and capital consolidation.
Equity: This is an ordinary share which does not attract fixed
profit/interest. The holders are like the primary owner of the firms.
Optimum Capital: Optimum capital of a firm occurs when the capital structure cost
or value of the firm’s capital is at a maximum.
Recession: A recovery period of decline in total output, income, employment
and trade usually lasting for period of six months t a year and marked by wide
spread contraction in many sector of the economy.
TERMS AND CONDITIONS APPLY
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