INVESTMENT MONITORING SYSTEMS AND FIRM PERFORMANCE: A STUDY OF SELECTED MULTINATIONALS IN PORT HARCOURT.
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INVESTMENT MONITORING SYSTEMS AND FIRM PERFORMANCE: A STUDY OF SELECTED MULTINATIONALS IN PORT HARCOURT.
1.1 BACKGROUND OF THE STUDY
A lot of researches have been carried out on investment Monitoring Systems in the Management Accounting field. Some scholars are of the view that Investment Monitoring Systems are relatively connected to the processes by which organizations supply appraisal techniques to ascertain the performance of projects that were executed in relation to the returns that would be obtained (Lofthouse,2006). Similarly, Sondah (2006:17), was of the view that the performance monitoring system of a firm is regarded as the legislation or the investment tools that make it possible for a firms constituencies to gather and analyze information about the firms economic performance. Consequently, Mansfield (2006:74) opined that for corporations to monitor their investments, they employ the use of the discounted cash flow approach in order to estimate the fundamental value of their companies. Such investment monitoring systems are of major importance in corporate governance because their ability to provide accurate information about the firms economic performance affects the incentives of managers and the economic efficiency of the firm (Copeland et al, 1996). Thus, investment monitoring is essential for firms to ascertain their corporate strategies (Harrison, 2000). Typically, investment decisions and corporate strategy can be developed by a firm for the purpose of achieving competitive advantage. Hence, a business firm facing a complex and changing environment will benefit immensely in terms of improved quality of decision making if capital budgeting decision are taken in the context of its overall corporate strategy.
This approach provides the decision maker in the firm with central theme in mind at all times as a guideline for effectively allocating corporate financial resources. Thus, allocating resources to investment without a sound concept of divisional and corporate strategy is a lot like throwing darts in a dark room (Bhavesh, 2000).
Therefore, in order to effectively monitor investment, there should be the improvement in decision making that might result from the adoption of discounted cash flow (DCF) or other defined evaluation techniques, and management should spend its time improving the quality of assumptions and assuring that all strategic questions involving investment management are answered (Levy, 2006). Based on this, Baseline (2000:43) opined that for there to be effective investment monitoring systems in corporate organizations, there should be strategic considerations in capital expenditure planning and control. Hence, to fill this gap, this study is intended to examine Investment Monitoring Systems and Firm Performance with focus on selected Multinationals in Port Harcourt.
1.2 STATEMENT OF THE PROBLEM
Corporate transaction revolves around money (Harrison, 2000:292). This facilitates and enables single and composite groups to undertake basic functions that turned them into decision makers. But sourcing and cumulating money is fairly uneasy, especially for production. However, when one corporation is faced with a thought that it is profound, then there is a conscious effort at resource conservation. When money is set aside and allowed to grow, it becomes fund. The tenacity with which this is translated and tie to a programme makes the decision process more focal. When a programme is well packaged with all the necessary factor input, then a project is born, which is further allocated some funds for execution (Bhavesh, 2000). According to Harrison (1995:79), funds transmit into capital when actual commitment becomes continuous on a project, even in the provision of physical assets.
Thus, Levy (1990:201) opined that investment is the commitment of capital to a properly identified and packaged project, and it is a production process that involves financial commitment or transaction with a return or yield. Consequently, Levy (1990:202)further stated that the performance of a multinational firm is enhanced based on the approaches it adopts to monitor its investment; and these approached includes: the Net Present Value (NPV), Pay-Back Period, (PBP), Internal Rate of Return (IRR), Profitability Index (PI), and the Return on Investment (ROI) appraisal techniques.
More so, Parish and Briston (1991:96) opined that investment monitoring systems refers to the quantitative and quantitative approaches by which the performance of a firm is appraised. These approaches, according to Ngerobo (2000:40) are essential meant to ascertain how corporate performances are monitored and controlled.
To him a firms performance involves the area of business intelligence which ensures the monitoring and management of available resources in an organization against its laid down objectives. Similarly, to him the key performance indicators in firms are; revenue, profitability, shareholders, value, sales volume, efficiency, productivity, and favourable overhead and operational cost. Thus, whenever the key performance indicators are in favourable states, they depict efficiency.
While any form of adverse the matter in this research. Based on this, the crux of the matter in this research is to ascertain effects of the dimensions of investment monitoring systems on corporate performance. Thus, issues to be investigated will be based on knowing how NPV can influence profitability in a firm; understand why profitability index can influence revenue; know how ROI can enhance revenue; investigate into how pay-back period can enhance shareholders value, and ascertain the effect of IRR on sales volume. Hence, this study is intended to examine investment monitoring systems and firm performance in multinationals.
1.3 PURPOSE OF THE STUDY
The purpose of this study is to examine investment monitoring systems and firm performance. Investment monitoring systems refers to the quantitative and quantitative approaches by which the performance of a firm is appraised (Parish and Bristion, 1991). Firm performance involves the area of business intelligence which ensures the monitoring and management of available resources in an organization base on laid down objectives (Ngerobo, 2000). Hence, this study seeks to find out.
1. The extent to which net present value can influence shareholders value.
2. The relationship between payback period and profitability
3. The effect of net present value on profitability
4. The impact of payback period on shareholders’ value.
5. The common conceptualizations of investment monitoring systems and firm performance in the Nigeria work environment.
6. The impact of investment monitoring systems on firm performance in multinationals.
1.4 RESEARCH QUESTIONS
Based on the research hypotheses, conceptual framework, the statements of the problem and the purpose of the study, the following research questions were developed to guide the study.
1. To what extent can payback period influence profitability?
2. What is the relationship between payback period and shareholders’ value?
3. In what measure can net present value enhance profitability?
4. To what extent can net present value influence shareholders’ value?
5. Does the size of the organization influence the relationship between payback period and profitability?
6. Does the technology of the organization influence the relationship between net present value and shareholders value?
1.5 RESEARCH HYPOTHESES
Using the conceptual framework as the backbone of the study, the following hypotheses will be developed.
H01: There is no significant relationship between payback period and profitability.
H02: There is no significant relationship between payback period and shareholders value.
H03: There is no significant relationship between net present value and profitability.
H04: There is no significant relationship between net present value and shareholders value.
H05: The size of the organization does not significantly affect the relationship between payback period and profitability.
H06: The technology of the organization does not significantly affect the relationship between net present value and shareholders’ value.
1.5. DISCUSSION OF THE CONCEPTUAL FRAMEWORK
The conceptual framework seeks to explain the interactive relationship between the dependent variable “Firm Performance’ and the independent variable “Investment Monitoring Systems”, and how the moderating variables influence the conceptual factor.
Figure 1.1 Conceptual Frameworks
Source: Survey Data, 2001.
1.6 SIGNIFICANCE OF THE STUDY
The research is important in that it will be a source of information to accountants, financial analysts, corporate managers, auditors, students, resources owners and lecture in the field of management accounting. The study will help to provide means by which corporations and multinationals can monitor their investments and ascertain their performances. Holistically, the study will be beneficial to the entire economy, and it will also stimulate thought for further research.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study is intended to investigate into investment Monitoring Systems and Firm Performance in Multinationals in Port Harcourt order to gather data from 1986 to 2011. Thus, in this study, the following multinationals will be investigated. They are: Shell Petroleum Development Company (SPDC) of Nigeria, Nigeria Agip Oil Company (NAOC) Limited, Total Petroleum Nigeria (TPNL) Limited, Chevron Nigeria (CNL)Limited, and Mobil Producing Nigeria (MPNU) Unlimited.
The respondents for the study will be the top, middle and lower level managers of the multinationals. Essentially, the research is supposed to cover a lot more multinationals in Port Harcourt so as to obtain data on the interactive relationships between investment monitoring systems and firm performance. However, this intended scope of the research could not be achieved due to the cost involved in collecting data and the time frame allowed for the study. Consequently, the survey will cover major towns in Port Harcourt namely: Trans-Amadi Industrial Layout, Rumuomasi, Rumueme, Rumukrushi and Oginigba. These areas are covered in the study based on the spatial distribution of multinational companies in Port Harcourt, which depicts a large concentration of the multinationals in very few administrative and urban areas. Moreover, data collected from the multinationals in these towns will be generalized to be the true representation of other parts of Port Harcourt that were not covered in this study.
In addition, many managers of the multinationals that were administrative questionnaire did not complete them and in most cases they were not ready to give business secrets to the researcher in view of the fact that they were afraid of giving out valuable and sensitive information to their companies competitors. However, these limitations will not stop the research from producing its intended results as the sample technique adopted will definitely allay all fears of bias and ensure that the findings of the study is generalizable.
1.8 DEFINITION OF TERMS
This study is aimed at examining investment monitoring systems and
Firm: it is an organization which executive business.
Firm Performance: Thus, to avoid possible confusion, the following key terms will be explained operationally.
Investment: It is a commitment of capital to a properly identified and packaged project which is expected to provide returns.
Monitoring: It is a process of using investment tools to check and confirm the strength and weakness of a project.
Performance: It refer to the results that are achieved while carrying out business activities.
Systems: It refers to an organized mechanism of specific activities and projects that are interrelated.
1.9 ORGANIZATION OF THE STUDY
This research is organized into five chapters. Chapter one deals with the introductory aspects, namely, background of the study, statement of the problem, purpose of the study, research questions, and research hypotheses. Others are; significance of the study, scope and limitations of the study, definition of terms and organization of the study. Chapter two deals with the review of related literature on the subject matter.
Chapter three is centered on the description of the research methodology with emphasis on the research design, population sampling procedure and sample size determination, data collection method, operational measures of variables, instrumentation, test of validity and reliability, and data analysts’ technique.
Chapter four explains the presentation and analysts of data.
Chapter five presents the discussion of findings, conclusion, recommendations and suggestions for further studies.