BUSINESS ADMINISTRATION

CAPITAL BUDGETING MODERATORS AND SHAREHOLDERS’ WEALTH MAXIMIZATION IN THE NIGERIAN COMMERCIAL BANKS

Format: MS WORD |  Chapter: 1-5 |  Pages: 65-80 |  Price NGN3,000

ABSTRACT

Optimal investment decision maximizes the value of shareholders’ wealth, while achieving the goals of the corporation. However, making investment decisions takes into consideration internal and external factors and capital budgeting moderators: inflation, political instability, economic conditions and management attitude to risk. Based on economic theory, good capital budgeting should have a significant positive link with shareholders’ wealth, especially when the moderators are positively aligned in their decisions. However, the presence of failed or abandoned projects, in practice, indicates that this is not the case always. In view of this, it becomes imperative to seek new insight on how moderators of capital budgeting impact shareholders’ wealth in the banking sector in Nigeria.

The study adopted the descriptive survey research design. The study population consisted of 53,528 members of staff of twelve commercial banks in Nigeria. Primary and secondary data were used in the study. Taro Yamane’s formula was used to determine the sample size of 397. Members of the sample were selected using simple random sampling technique. A self-developed questionnaire was used to collect primary data from top, middle and lower management staff of the selected banks. The questionnaire was validated, with a Cronbach’s alpha test yielding between 0.76 and 0.91 for the constructs of the variables. The response rate was 90.7 %. Secondary data were collected from the published financial statements of twelve purposively selected banks from 2004 to 2013. Descriptive statistics were used to analyze the secondary data, while multiple regressions analysis was used to analyze the primary data.

The findings revealed that capital budgeting moderators had significant effect on dividend per share (R2 = 0.286, p<0.05). Profitability was significantly affected by capital budgeting moderators (R2 = 0.448, P<0.05), and there was a significant effect on retained earnings by capital budgeting moderators (R2 = 0.403, P<0.05). Similarly, capital budgeting moderators had a significant effect on market value (R2 = 0.404, P<0.05).

In conclusion, capital budgeting moderators influenced shareholder’s wealth positively. It was therefore recommended that investment managers should factor in the influence of capital budgeting moderators on shareholders wealth when making investment decisions. This implies that bank managers should always take such factors as inflation, political instability, management attitude to risk and general economic conditions into account when taking investment decisions.

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