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VENTURE CAPITAL
FINANCING AND PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES
ABSTRACT
The study
venture capital financing and performance of small and medium enterprises in
Akwa Ibom aimed at finding the relationship between venture capital financing
and performance of small and medium enterprises in Akwa Ibom State other
objectives of the study includes; to evaluate the benefit of venture capital to
SMEs performance, to evaluate the level of venture capital accruing to SMEs in
akwa ibom state, to evaluate the performance of SMEs in the year 2001- 2015, to
determine the relationship between venture capital and SMEs performance, the
study made use of the data obtained from the CBN statistical bulletin 2016.
Ordinary least square regression was used to test the hypothesis. The study
found out that there is significant relationship between venture capital
financing and performance of small and medium enterprises in Akwa Ibom State.
The performance of SMEs was the same for the year 1999 and 2014. SMEs
experienced the highest performance in the 2012 with a performance rate of
98.9. The study then concluded that there is a statistically significantly
strong positive relationship between venture capital financing and the
performance of small and medium scale enterprises in Uyo, Akwa Ibom state.
Proper recommendation were made to enhance the interest of researchers for
further study of venture capital financing and the performance of small and
medium scale enterprises in Uyo, Akwa Ibom State.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Governments throughout
the world are nowadays turning their attention to small-scale enterprises. This
is because attempts to promote economic progress by establishing large
industries have usually failed to improve the lives of the majority of the
populations concerned (White Paper on International Development, 2000).
Therefore, Small and Medium Enterprises (SMEs) are now viewed as important in
even and equitable economic development.
RoK (2005)
clearly show that the sector is not only a provider of goods and services but
also a driver in promoting competition, innovation and enhancing the enterprise
culture which is necessary for private sector development and
industrialization. The sector should effectively respond to challenges of
creating productive and sustainable employment opportunities, promoting
economic growth and poverty eradication in the country.
SMEs will
play a significant role in contributing to the national goal of wealth creation
and making Nigeria an industrialized country ( Liedholm 1998). Lack of access
to credit is a major constraint inhibiting the growth of SMEs sector. The
issues and problems limiting SMEs acquisition of financial services include
lack of tangible security coupled with inappropriate legal and regulatory
framework that does not recognize innovative strategies for lending to SMEs.
Limited access to formal finance due to poor and insufficient capacity to
deliver financial services to SMEs continues to be a constraint in the growth
and expansion of the sector. Formal financial institutions perceive SMEs as
high risk and commercially unviable As a result only a few SMEs access credit
from formal financial institutions in the country. Various types of assistance
have been provided to SMEs to boost their growth and development by making them
more profitable (Institute of Economic Affairs & Society for Economic
Development (IEA/SED, 2001). Several Organizations including business
associations, voluntary organizations and other nongovernmental organizations
have set up programs to enhance the factors that influence development of SME
especially as it relates to enterprise growth and development.
The types of
assistance offered by these organizations vary with some giving financial
assistance, others training and extension services, pre-constructed commercial
shades or assisting in marketing of products (Admati, & Pfleiderer (1994).
Despite the large number of assistance programs, the growth and development of
SME has not been satisfactory. Ventures have collapsed as soon as assisting
organizations pull out of the project, and remaining ones have remained small.
According to the study undertaken by Hallberg (1998) and Mead and Liedholm
(1998), access to finance is an important ingredient to development. Financial
constraints are likely to affect business creation and improvement.
Venture
Capital is one source of non-bank financing, which is quite prevalent in
developed financial markets for small or start up firms (Keuschnigg 1998).
Venture Capitalists are organized providers of financing for winning but risky
business proposals by small and medium enterprises that have a promising but as
yet unproven idea. If the Venture Capitalists are convinced that a business
idea is promising, they will take an ownership stake in the business. It is
expected that country’s small businesses whose growth has been constrained by
shortage of capital or increased cost of borrowing will have another source of
finance.
There is
empirical evidence of the effects of venture capital financing in the
industrialization of developed countries. In the United States of America, the
role of Venture Capital financing has been instrumental throughout its
industrialization; however it became institutionalized after the 2nd World War.
Before World War II, venture investment was a monopoly led by wealthy
individuals, investment banking syndicates and few family organizations with a
professional manager (Hisrich and Peters, 2002). For example, over the years,
the Rockefeller family has made the initial capital contribution to a number of
successful businesses.
1.2 STATEMENT OF THE PROBLEM
Small and
medium, enterprises in Nigeria have difficulties in growth due to lack of
finance. They hardly grow beyond start-up stage. Others go out of business at a
very early stage. The study undertaken by Hallberg (1998), and Mead &
Liedholm (1998) reveals that access to finance is an important ingredient to
development of SME. They have few alternatives of accessing finance other than
relying on their retained earnings to finance their investments.
Notwithstanding the financial difficulties faced by SME presently in Nigeria,
alternative sources of funds have to be sought to sustain this important
sector. Venture capital financing, which is quite prevalent in developed
countries, has played a big role in enhancing growth of SMEs by providing
equity capital. In countries where venture capital financing has been practice,
it has brought tremendous improvement to the small and medium enterprises. The
researcher feels that it is important to examine the relationship between
venture capital financing and performance of small and medium enterprises in
Nigeria considering the poor level of development experienced in the sector in
the country.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
To evaluate
the benefit of venture capital to SMEs performance
To evaluate
the level of venture capital accruing to SMEs in akwa ibom state.
To evaluate
the performance of SMEs in the year 2001- 2015
To determine
the relationship between venture capital and SMEs performance
1.4 RESEARCH QUESTIONS
What are the
benefits of venture capital to SMEs performance?
To what
level is venture capital accruing to SMEs in akwa ibom state?
What is the
level of performance of SMEs in the year 2001- 2015?
Is there any
relationship between venture capital and SMEs performance in akwa ibom state
2001-2015?
1.5 HYPOTHESIS
The study
came up the hypothesis as stated below in order to elicit information on the
performance of SMEs and venture capital financing. The specific hypothesis is
stated below as follows:
HO: there is
no significant relationship between venture capital financing and performance
of small and medium enterprises in Akwa Ibom State.
HA: there is
significant relationship between venture capital financing and performance of
small and medium enterprises in Akwa Ibom State.
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
Findings of
this study will be useful for business owners and management of business the
benefit accruable from venture capital financing with emphasis on its
relationship with a new businesses.
This
research will be a contribution to the body of literature in the area of
venture capital financing and performance of small and medium enterprises,
thereby constituting the empirical literature for future research in the
subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study
will be limited to small and medium businesses in Akwa Ibom State that has
benefitted from venture capital financing.
LIMITATION
OF STUDY
Financial
constraint- Insufficient fund tends to impede the efficiency of the researcher
in sourcing for the relevant materials, literature or information and in the
process of data collection.
Time
constraint- The researcher will simultaneously engage in this study with other
academic work. This consequently will cut down on the time devoted for the
research work.
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