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Introduction
Small and Medium-scale Enterprises (SMEs) play very important roles
in the process of industrialization and sustainable economic growth
(Ogujiuba, Ohuche and Adenuga, 2004; Ariyo, 2005; Ihua, 2009;
Aremu and Adeyemi, 2011; Terungwa, 2012). Since the 1960s to date,
(SMEs) are being given due recognitions especially in the developed
nations for playing very important roles towards fostering accelerated
economic growth, development and stability within several economies
(Gunu, 2004; Onugu, 2005; Aremu, 2010). They make-up the largest
proportion of business all over the world and play tremendous roles in
employment generation, provision of goods and services, creating a
better standard of living, as well as immensely contributing to the Gross
Domestic
Products
(GDP)
of
many
countries
(Ihua,2009;Paul,2010;Ojeka and Mukoro,2011). In the United States of
America, SMEs employ 50% of her workforce, and generate more than
half of the nations Gross Domestic Products (Audretsch, 2010). SMEs
account for 99.8% of all companies and 65% of business turnover in
European Union (Ariyo, 2005). The situation is not different in Africa
as research reported by Kongolo (2010) reveals that in South Africa,
SMEs account for about 91% of the formal business entities
contributing about 51% and 57% of GDP, providing almost 60% of
employment.
SMEs sub-sector came into the mainframe of policy formulation in
Nigeria owing to its obvious vital contributions (Obamuyi, 2007). Like
in the developed countries, SMEs have enabled entrepreneurship
activities through which employments have been generated and poverty
reduction and sustainable livelihood achieved (Ogujiuba et al, 2004). It
makes up about 97% of businesses in Nigeria and provide on average
50% of Nigerias employment, and its industrial output (Ariyo, 2005;
Taiwo, Ayodeji and Yusuf, 2012). SMEs have the ability to start small
and grow quickly and as well survive through rapid response adjustment
in good and bad economic times (Mitchell and Raid,2000;
Nandan,2010). Government and development experts have, therefore,
realised the fact that SMEs possess the needed catalyst to turn the
economy around for good (Udechukwu, 2003; Anyanwu, 2003)
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With reference to the problem highlighted above, this study has the
following objectives: to determine the accounting practices of SMEs in
Nigeria and to determine the extent at which SMEs access to finance is
dependant on their accounting practices in Nigeria. In order to achieve
the above stated objectives, this study has asked the following
questions: how adequate are the accounting practices of SMEs in
Nigeria and to what extent does the SMEs access to finances depend on
their accounting practices in Nigeria? The hypotheses relevant for this
study are: SMEs in Nigeria do not have poor accounting practices and
SMEs access to finance in Nigeria does not depend on their accounting
practices.
Literature Review
Recently, banks practices all over the world have shown that accounting
information has provided bases for evaluating SMEs for the purpose of
making funds accessible to them (Ohachosim, 2012). These
contemporary banks practices have given rise to certain models/rules
such as; Bank capital channel model, Bank capital constraint model of
lending behaviour, financial statement rule, Asset Based Rule, Credit
Scoring and Relationship lending. Some of these models/rules emerged
because of the unique nature of SMEs which has made it difficult for
their viability to be evaluated on the bases of the known feasibility
reports. By definition in Nigeria, Small and Medium Industries Equity
Investment Scheme (SMIEIS), defined SMEs as those enterprises with
a total capital employed not less than N1.5million, but not exceeding
N200million, including working capital, but exceeding cost of land
and/or with a staff strength of not less than 10 and not more than 300
(Obamuyi, 2007). This definition has included many small firms under
the bin shade of SMEs. The nature of business transactions in most of
these firms does not provide opportunities for outsiders to have clear
knowledge of the goings-on in these small firms. This is what is
prominently referred to as information asymmetries. It is because of this
that assessment of the viability of projects in small firms demand
processes more reliable than mere feasibility reports. The methods in
use so far rely heavily on accounting information thus revealing to the
accountants the tasks ahead to serve the accounting need of the SMEs
today.
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Accounting information has also been found to be very crucial for the
purpose of financial management. Empirically, it has been demonstrated
by a number of studies that the accountant possesses the skill with
which any meaningful financial management can be instituted in any
organization (Brean, Scuilli & Calvet: 2003). Studies have also shown
that sound financial management is crucial to survival and growth of
small business (Gorton: 1999). The fact that high rate of small business
failure is attributed to poor or careless financial management has lain
itself to empirical evidence. Effective financial management can only be
instituted in the presence of quality accounting information. Potts
(1977) states that the clearest and most startling distinction between
successful and discontinued small businesses lie in their approach to
uses which can be made of accounting information. Accounting
information is not a mere fabrication of the accountant; it is actually the
results of business undertakings of the SMEs. This would mean that the
accountant should be aware of the business activities and ensure that
relevant ingredients are not dropped on the way. This work would,
therefore, review empirical literature on the practices of some
successful SMEs with the aim of finding out what has ensured their
financial breakthrough.
DeThomas and Fredenberger (1985) carried out a survey of some
progressive 360 SMEs in Georgia and find out that they have installed
and used very effective accounting information systems. The survey
reveals that the SMEs have high standard of financial recordkeeping.
Around 92 percent of respondents had some form of recordkeeping
beyond check stub deposit receipts. It is quite obvious that the success
of the SMEs studied is attributed to their accounting systems which
were very effective in line with this, is the finding of DAmbose and
Gasse (1980) who studied the utilization of formal management
techniques in 25 small shoe manufacturers and 26 small manufacturers
in plastics industry in Quebec Canada and found that a cost accounting
system was in operation in about 88 percent of businesses studied.
Richard et al (1991) explained that the availability of affordable
computers and suitable software has played an important part in
promoting a working accounting system. Magnenat-Thalmann (1982)
discovered a preponderance of accounting related applications among
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collateral as a must for SME. As Obamuyi (2007) has put it, The
banks requested for collateral as an additional requirement, apart from
requiring personal guarantees for SME loans, because the financial and
operational transparencies of SMEs were relatively low and their
accounting standards were poor
Ojeka & Mukoro (2011) in the topic titled, International Financial
Reporting Standard (IFRS) and SMEs in Nigeria: Perception of
Academic found that there is still need to enlighten people especially
the SME operators on the usefulness of the IFRS for SMEs. The
accountant will really have a lot of work to do to implement the IFRS
for SMEs in Nigeria. The listed advantages of IFRS for SMEs includes;
improving the comparability of information presented in financial
statement, increasing confidence in global annual invoices, SMEs
reduce cost associated with maintaining accounting standards, presence
of a complete set of accounting principles simplified for each type of
entity; increased satisfaction of the needs of users of financial
statements (AICPA, 2011; Marion, 2009). Ojeka & Mukoro (2011)
empirically demonstrated that the IFRS for SMEs will help to gain more
capital for growth and expansion. This is because such standard will
attract investors and the fact that some banks like; GTB Bank, Access
Bank, Zenith and First Bank, have embraced the IFRS for SMEs is an
evidence to the assertion (Naomi, 2010; Ojeka and Mukoro, 2011)
The fact that the SME owners are amateur in business management
creates varieties of opportunities for external services providers like the
accountant (Yusoff, 2006). Empirical evidence suggests that
accountants play a key role in advising SMEs, because they provide the
most frequent source of advice (Benneth and Smith, 2002; Carter and
Mason, 2006; Scoth and Irwin, 2009; Devi and Samujh, 2010),
especially in matters relating to regulation and compliance (Gooderham
et al 2004; Blackburn et al 2006; Leung et al, 2008). Following the
changing of global business environment, the accountants services to
SMEs have changed from mere regulation and compliance work
(Chaston et al, 2002). CPA Australia (2007) points out that service and
product mixes will change and that public practitioners will need to
review their levels of knowledge, and training, and then management
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P1
= odd ratio in favour of accessing credit
1-P1
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P1
In 1-P1 = Log of the odd ratio in favour of accessing credit
X1 = ith level of accounting practice by ranking
X2
domiciled as
collateral = 0.
1, 2 and 3 are coefficients and 1 is the stochastic error term
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in each level of
at each level of
Accounting
accounting
practice
Practice
Xi
Ni
0
ni
20
151
15
83
21
36
11
20
It could be seen from the above that the higher the levels of accounting
practice the higher the proportion of SMEs who access loan from
financiers. At 0 levels of accounting practice, 10 % of the SMEs obtain
loan (definitely, this must be those who are capable of providing
collateral facility). We see that while 9.9% accessed fund at level 1,
25% accessed fund at level 2. The increase continued as follows: 30%
at level 3, 45% at level 4, no SME is at level 5, 100% at level 6 and no
SME at level 7. Preliminary, we assert that the higher the levels of
accounting practice the higher the accessibility of fund. We are yet to
confirm this preliminary result from our GLOGIT model.
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2
15
21
11
9
0
2 = 100%
19 = 67%
15 = 71%
5 = 45%
0 = 0%
-
1
1
1
1
0
6
1
0 = 0%
0
7
0
As an a priori statement, the researcher is confident to ascribe 0 to any
level of accounting practice if 95% and above do not provide collateral
to qualify for loans otherwise it will ascribe 1. It is allowable in
behavioural sciences to accommodate 5% chances of making mistakes.
The table above shows that the few SMEs at very high levels of
accounting practice do not provide collateral to qualify for most loans.
This is shown at levels 4 and levels 6 respectively.
Table 3: Log of the odds, Levels of Accounting Practice and
Collateral Facility
L
X1
X2
-0.954
-0.959
-0.470
-0.356
0.629
0
-
0
1
2
3
4
5
6
7
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1
1
1
1
0
0
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Vo. 1 No. 2
One interesting phenomenon is that when the log of the odds becomes 0
or positive, SMEs do not provide collateral to qualify for loans.
Table 4: Line Graph of Loan Accessibility and Relating Factors in
Nigeria.
8
-2
1
4
L
5
X1
X2
It could be seen from the line graph above that loan accessibility
represented by the log of the odds (L) is rising following the rise in the
levels of accounting practice(X1) of the SMEs in Nigeria. We see that
above the line(X2) representing collateral facility, loan accessibility was
actually rising following the rise in accounting practice. SMEs need not
necessarily provide collateral facility to qualify for loans provided they
maintain high accounting standard as indicated by the line X1
representing accounting standard. A further confirmation can be done
from the regression results below.
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Coefficient
Std. Error
t-Statistic
Prob.
X1
0.064167
0.045056
1.424147
0.2275
X2
-0.781000
0.183019
-4.267312
0.0130
R-squared
0.747220
-0.351667
Adjusted R-squared
0.684025
0.605154
S.E. of regression
0.340167
0.942441
0.462854
Schwarz criterion
0.873027
F-statistic
11.82405
Prob(F-statistic)
0.026327
Log likelihood
Durbin-Watson stat
-0.827323
0.537459
The log of the odds (L) is positively related to the levels of accounting
practice(X1). This implies that as the SMEs improve their accounting
practices; their financial challenges become reduced as their access to
finance increases. This is because financiers will be more willing to
make fund available to them. Also following an improved accounting
practice, SMEs will be more disposed to manage their funds profitably.
This result is in harmony with the preliminary results shown above. The
log of the odds does not have positive relationship with collateral
facility(x2). We can assert that loans to SMEs in Nigeria do not
necessarily depend on the ability of the SMEs to provide collateral
security. However, for R-squared of 0.7472, Adjusted R-squared of
0.6840 and a significant F value, the two variable X1 and X2 can
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Reference
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Economic Growth in Nigeria,
1970-2008: Disaggregated
Analysis Business and Economic Journal, BEJ-4, 13-20.
Adelakun, T. (2008), Why small business face high failure rates in
Africa.
Retrieved
February
28,
2012
from
http://www.helium.com/items/1019969-whysmallbusiness-facehigh-failure-rate-in-africa
AICPA (1989, 10th May), Education member Survey, Planning and
Research Division, P. 102
Aldrich, J. H. and F. Nelson (1984), Linear Probability, Logit and
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Amemiya, T. (1981), Qualitative Response Regression Models,
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Anvari, M. and V. V. Gopal (1983), A survey of Cash Management
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Anyanwu, C. M. (2002), The Role of Central Bank of Nigeria in
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CBN Training Centre, Lagos
Aremu, M .A. and S. L. Adeyemi (2011), Small and Medium Scale
Enterprises as survival strategy for Employment Generation in Nigeria,
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