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.
CHAPTER ONE
INTRODUCTION
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.
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