TABLE OF CONTENTS
Title page
Declaration
Approval page
Dedication
Acknowledgements
Abstract
Table of Contents
List of Tables
List of Figures
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypotheses
1.6 Scope of the Study
1.7 Limitations of the Study
1.8 Significance of the Study
References
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework
2.1.1 Concept of Interest Rate
2.1.2 Concept of Performance of Quoted Firms
2.2 Theoretical Review
2.2.1 Theories of Interest Rate
2.2.2 Functions of Interest Rate
2.2.3 Value of Interest Rate
2.2.4 Structure of Interest Rate
2.2.5 Term Structure of Interest Rate
2.2.6 Determinants of Movements in Interest Rate
2.2.7 General Effects of Interest Rate Movements
2.2.8 Interest Rate Deregulation
2.2.8.1 Starting Point and Speed of Deregulation
2.2.8.2 Sequencing of Interest Rate Deregulation
2.2.9 Monetary Policy Reform and Interest Rate Deregulation
2.3 Empirical Review
2.3.1 Interest Rate Deregulation in Nigeria
2.3.2 Factors Influencing Corporate Performance
2.3.3 Perspective on the Administration of Interest Rate
2.3.4 Conditions for Successful Interest Rate Deregulation
2.3.5 Central Bank of Nigeria and Control of Interest Rate
2.3.6 Country Case Studies
2.3.7 Multi-Country Studies
2.3.8 Review of Literature on Impact of Interest Rate Deregulation on Corporate Performance
2.4 Review Summary
References
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design
3.2 Nature and Sources of data
3.3 Model Specification
3.4 Explanatory Model Proxies
3.5 Techniques of Analysis
References
CHAPTER FOUR: PRESENTATION AND ANALYSES OF DATA
4.1 Introduction
4.2 Data Presentation
4.3 Descriptive Statistics
4.4 Test of Hypotheses
4.4.1 Test of Hypothesis One
4.4.2 Test of Hypothesis Two
4.4.3 Test of Hypothesis Three
References
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
5.2 Summary of Findings
5.3 Conclusion
5.4 Recommendations
5.5 Suggestion for Further Research
Appendixes
Bibliography
ABSTRACT
Amongst the major economic reforms that were introduced in 1986 is the deregulation of interest rates in the Nigerian financial market. The theoretical base for deregulation is largely attributable to the Keynesian investment theory. The overall aim of deregulating interest rates is to encourage savings mobilization and make it possible for adequate flow of financial resources to the productive sectors of the economy. Undoubtedly, interest rate deregulation could have an impact on the manufacturing sector of the economy. With limited resources and the upsurge in foreign exchange demand, the trend has been an upward movement of interest rate which a deregulated interest regime has helped to escalate. In the same context, the inefficiencies in government controls and regulation have introduced increased concerns about the government’s ability to manage deregulation to achieve positive results. Thus, the effect of deregulation can be seen in the high borrowing costs which have negatively affected profitability of businesses coupled with inadequate working capital and low shareholders’ fund. It is in line with the above that this study sought to: (i) examine the impact of interest rate deregulation on profit before tax of quoted manufacturing firms, (ii) determine the impact of interest rate deregulation on net working capital of quoted manufacturing firms, and (iii) ascertain the impact of interest rate deregulation on shareholders’ fund of quoted manufacturing firms in Nigeria. The study adopted the ex-post factoresearch design to enable the researcher make use of secondary data. Panel data series for a 26 year period 1987-2012 were collated. The Ordinary least square (OLS) regression analytical technique was adopted using E-View statistical software to test the three hypotheses formulated for the study. The parameters for performance of quoted manufacturing companies were Profit Before Tax, Net Working Capital and Shareholders’ fund which were adopted as dependent variables, while the parameter for interest rate deregulation was interest rate between 1987 to 2012 (period within which interest rate deregulation prevailed in Nigeria). It was used as independent variable. Exchange rate and inflation rate were adopted as control variables for the three hypotheses respectively. Descriptive statistics on the dependent as well as the independent variables was conducted before the regression analyses. The results reveal that interest rate had positive and non-significant impact on profit before tax of quoted manufacturing firms in Nigeria, interest rate had negative and significant impact on net working capital of quoted manufacturing firms in Nigeria, and interest rate had positive and significant impact on shareholders’ fund of quoted manufacturing firms in Nigeria after deregulation. However, interest rate deregulation, though a good policy, did not produce the required result in Nigeria. This might probably be as a result of improper pace and sequencing. This study recommends that manufacturing companies should restructure and diversify their funding sources to reduce much emphasis on borrowing so as not to fall victim of the negative effects of deregulation. Also, government emphasis should be towards a guided deregulation. With extensive monitoring and directing, it therefore follows that the policy of interest rate deregulation in Nigeria needs periodic fine-tuning.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Financial sector reform (FSR) became a major component of the structural adjustment programme in Nigeria with the deregulation of interest rates in August 1987. Today, one of the most regulated sectors in the Nigerian economy is unarguably the financial industry. Akiri and Adofu (2007) opine that the banking industry owing to the nature of activities, role, and function it performs in the economy, is also one of the widely and heavily regulated sector in both developing and developed countries of the world. As financial intermediary, banks help in channeling funds from surplus economic regions to the deficit one’s in order to facilitate business transaction and economic development in general. Bearing in mind that funds are owned by other people (the investing public/depositor) the banking ethics demand that such funds should be efficiently and effectively managed in order to build and maintain the confidence of depositors/investors in the banking system and also uphold the competence and continued soundness of the banking system to reduce drastically the risk or possibility of bank failure or distress.
The government most often may think it is necessary to intervene in the operation of the banking system with the intention of correcting the short comings of the price fixing mechanism to ensure that what is commercially rational for an individual bank is approximately rational for all. Socially, interest rate charged by banks could be regulated to encourage savings mobilization, ensure and foster adequate investment for rapid growth and development, bearing in mind the view of Goldsmith (1969) that the financial superstructure of an economy accelerates economic performance to the extent that it facilitates the migration of funds to the best user i.e to the place in the economic system where the funds yield the highest social return. Akiri and Adofu (2007) again opine that the existence of externalities and imperfection in the financial markets of most developing economies has often called for intervention by the government through its appropriate agent (the Central Bank of Nigeria in the case of Nigeria) to encourage investment and to re-channel credit to those economic units with high social rate of returns but low commercial rate of returns. In the (1987) budget....
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