Corporate Tax And Financing Decisions: An Emerging Market Experience

Theory has clearly made some progress on the subject of capital structure. We now understand the most important departures from the Modigliani and Miller assumptions that make capital structure relevant to a firm’s value. Tax shelters have received recent scrutiny in the financial economics literature because of their impact on firm decisions. However, very little is known about the empirical relevance of the different theories. In this study, we conduct empirical tests for one of the leading theory of capital structure; the trade-off theory. We analyze the relation between the capital structure of a firm and the effect of taxes on business financing decisions in Nigeria. The parameters of debt ratios are estimated by fitting multiple linear regression after this equation- l=f ( τ  r, s, v, π, m, c, σ). Our dataset covers a cross-section of 60 quoted firms from Nigerian stock Markets over a ten year period (1996-2005).We report under section 4.1 that the tax benefit of debt approximately equals fifteen (15) percent of firm value. However, this tax advantage does not seem to explain observed debt ratios since we could not obtain a statistically significant coefficient for the marginal tax rate

The Financing Behaviour of Firms in a Developing Economy: The Nigerian scenario

The goal of this study is to ascertain the validity of the asymmetry of information idea in explaining the financing choice of firms in Nigeria. The sample covers 60 firms quoted in the Nigerian Stock Exchange. The Nigerian nation does not have a well developed capital market and so remain heavily on internal funding. Using a regression analysis, this study reveals that leverage is a decreasing function of profitability. This supports the pecking order theory. The current economic problems in Nigeria can be attributed not to too much reliance on financial markets, but to too little. There is some sort of misalignments between the capital market and the money market which is likely to affect the efficiency of one in meeting the financing needs of corporations. There should be complementary roles between the two markets. In Nigeria, this expected complementary roles between the two markets lag. While it makes sense, for instance for banks to brave up towards meeting the long term financing needs of firms, it is also very necessary for the other fund providers to design financing products that would help fill up arising financing gaps not covered by banks. We recommend that firms would have to device other strategic ways of diversifying their funding sources. One is by balancing their investments in both fixed and current assets

Determinants of Excess Liquidity in the Nigerian Banking System

This study examines the determinants of excess liquidity in the Nigerian banking system using generalized autoregressive conditional heteroscedasticity (GARCH) for the period January 2008 to December 2015. The identified determinants of banking system excess liquidity are capital importation, Federation Account Allocation Committee (FAAC) distribution, exchange rate premium and policy instruments such as cash reserve ratio, special lending facility rate, Treasury bill rate and interbank rate. The empirical result revealed that the identified determinants have significant effect on banking system excess liquidity in Nigeria. Based on the findings, the study recommends that Nigerian monetary authority could rethink liquidity management in terms of developing robust strategies for mopping up the excess liquidity from the identified sources, rather than concentrating liquidating management strategy on the banking syste

Chinese Currency Devaluation and the Economic Implications for Nigeria

The decision of Chinese government to devalue the Yuan has attracted serious condemnation by majorly developed economies, despite the government position that the devaluation was aimed at aligning the Yuan with the market rate. The general argument is anchored on the notion that the devaluation was a strategy to increase China's share of global trade by making its goods cheaper in the international market. This thinking is influenced by the long standing Mundell–Fleming model, which aligned with the theory that competitive devaluation is detrimental to the world economy, because of beggar-thy-neighbour welfare effect. The situation is compelling other countries to respond by improving their balance of trade in response to China tactics. The inability of developing economies to respond to this global trade war could be attributed to factors such as colonialism, presence of agency of restraints, complementarity among developing countries, and other institutional rigidities such as technological deficiency, infrastructure deficit, and commodity based exports, among others. Chinese currency devaluation has impacted meaningfully on the Nigeria economy given the fact that Nigeria maintains strong economic ties with China. The paper argues that for developing economies to effectively respond to competitive devaluation, they must close their borders to certain goods, improve infrastructure, prioritize technological transfer, embrace value-added production, and eliminate institution rigidities that hinder the ease of doing business

Evaluating the Impact of Electronic Payment Channels on Sustainable Financial Inclusion in Nigeria

The underlining drives of many financial reforms were to motivate digital banking culture in order to achieve sustainable financial inclusion. It is not very clear the extent to which financial innovation reform has advanced financial inclusion in Nigeria. Similarly, some issues closely linked with digital finance have not been exhaustively addressed in the literature. This research paper therefore evaluated the effect that electronic payment channels had on financial inclusion in Nigeria. Quarterlized data obtained from the statistical bulletin of Central bank of Nigeria were used. The Autoregressive Distributed Lag Model was adopted and used for our estimation. Digital financing channels were not only significant but at same time positive with the financial inclusion variables under investigation. However, the observed financial inclusion may not have delivered access to all because the channels are elitist. The study advocates for a policy reform that takes care of structural rigidities to fully accommodate the excluded

Economic and social issues related to foreign land grab and capacity building in Zambian Agricultural economy

This paper focuses on the recent land grab in Zambia for agricultural investment. The paper explores the history of foreign land acquisition and shows the dynamics that led to the liberalization of land market in Zambia. The research argues that despite the negative effect of these investments, the government can leverage this opportunity to place the country on the trajectory of growth, especially in the area of capacity development through skill acquisition. This can be achieved by structuring the contract to contain some performance requirements that investors are expected to contribute to the local people. Keywords: land grab, foreign agricultural investment, capacity development. JEL Classification: Q

Financial Deepening and Sustained Economic Growth in Nigeria: What Nonlinear Models Reveal

Motivated by the desire to expose a possible nonlinearity and non-proportionality in linking financial deepening and economic growth, we investigated the finance-growth nexus from a linear and nonlinear perspective using dataset from Nigeria for 1981: Q1 to 2017: Q4. Using the Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive distributed Lag (NARDL) models, and it was found that economic growth tends to adjust nonlinearly to financial deepening than it does linearly. This is expected to guide policy makers towards ensuring that the linearity and nonlinearity polarity of the finance-growth nexus are always factored-in while formulating policies relative to driving sustained growth through financial deepening

The Relative Impact of Bank Credit on Manufacturing Sector in Nigeria

This study examined the relative impact of Bank credit on the manufacturing sector in Nigeria' 1986-2013. The major objective was to investigate the extent of impact of bank credit on the output of the manufacturing sector in Nigeria. The Study adopted the ARDL bound cointegration test approach and error correction representations. Focusing on the short run relationship, we found every explanatory variable and their following lags as significant functions of Volume of Bank Credits (VBC) at 5% except Exchange rate and its lags. In the Bound Test following the ARDL, we found evidence in favor of cointegration among the variables regardless of whether they are stationary or not given that the observed test statistic exceeds the upper critical band. Our results imply the presence of co integrating vectors of long run equilibrium relationships among the variables of interest. This result is corroborated by the Dynamic OLS results as well as the long run estimates of the ARDL. Overwhelmingly, we found evidence of a certain return to the long-run equilibrium in the model.  The error correction term is negative and statistically significant. The negative value shows that there exists an adjustment speed from short-run disequilibrium towards the long-run equilibrium. By this, there is an indication that it takes about three years to restore the long-run equilibrium state on  the Output of the manufacturing should there be any shock from the explanatory variables. By way of policy recommendation or positioning, the Central Bank and other monetary authorities alike should make policy that will lead to increase in volume of bank credits to the manufacturing sector. As this will play a catalytic role for growth in the sector in particular and the economy in general. Keywords: Manufacturing sector, Volume of Bank credit, Nigeria, Autoregressive Distributed Lag Model JEL Classifications: E51, L

The Financing Behaviour of Firms in a Developing Economy: The Nigerian scenario

The goal of this study is to ascertain the validity of the asymmetry of information idea in explaining the financing choice of firms in Nigeria. The sample covers 60 firms quoted in the Nigerian Stock Exchange. The Nigerian nation does not have a well developed capital market and so remain heavily on internal funding. Using a regression analysis, this study reveals that leverage is a decreasing function of profitability. This supports the pecking order theory. The current economic problems in Nigeria can be attributed not to too much reliance on financial markets, but to too little. There is some sort of misalignments between the capital market and the money market which is likely to affect the efficiency of one in meeting the financing needs of corporations. There should be complementary roles between the two markets. In Nigeria, this expected complementary roles between the two markets lag. While it makes sense, for instance for banks to brave up towards meeting the long term financing needs of firms, it is also very necessary for the other fund providers to design financing products that would help fill up arising financing gaps not covered by banks. We recommend that firms would have to device other strategic ways of diversifying their funding sources. One is by balancing their investments in both fixed and current assets.capital structure. Common stock. Expected return, financial leverage

Corporate Tax And Financing Decisions: An Emerging Market Experience

The objective of this study is to determine the significance of the taxbenefits in explaining observedleverage ratios amongst firms in Nigeria. Toinvestigate how the results of previous studies and traditional theories on financialleverage compare with the real situation in the Nigeria corporate environment. Thedifferential impact of tax treatment of debt on corporate financial policy indeveloped countries. The parameters of debt ratios are estimated by fitting multiplelinear regression after this equation-l=f (τ r, s, v, π, m, c, σ). Our dataset covers across-section of 60 quoted firms from Nigerian stock Markets over a ten yearperiod (1996-2005). The tax benefit of debt approximately equals fifteen (15)percent of firm value. However, this tax advantage does notseem to explainobserved debt ratios since we couldnotobtain a statistically significant coefficientfor the marginal tax rate.The provision of empirical evidence in support of knowntheories