Ownership Structure of Corporations in Small Scale Enterprise in Nigeria

Ownership Structure of Corporations in Small Scale Enterprise in Nigeria

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Chapter one on Ownership Structure of Corporations in Small Scale Enterprise in Nigeria

INTRODUCTION

The role of Small and Medium Enterprises (SMEs) in any economy cannot be overlooked as they constitute a significant employer of labor as the active role of small and medium enterprises as a key element of development in developing countries has been acknowledged. As stated by Kuteyi (2013), small and medium enterprise stimulates economic growth as they generate employment and add to the gross domestic product (GDP). In the opinion of Ariyo, (2008); Ayozie and Latinwo (2010), and Muritala, Awolaja and Bako, (2012), there is the greater tendency of SMEs utilizing more labor-intensive equipment thereby minimizing unemployment especially in developing countries which therefore have a significant effect on employment creation. Emphasizing on the significance of SMEs on economic growth, SMEs generate prospects for revenue generation and circulation, and wealth accumulation (Ojo, 2003; World Bank, 2010; Babajide, 2012). SMEs develop the formation of a new group of small industrialists bringing about development, and wealth accumulation. One major factor that affects the performance of SMEs is that of managerial skills and ownership structure and according to Gursoy and Aydogan, (2002) the concept of ownership structure can be well-defined along two scopes: ownership concentration and ownership mix. The earlier refers to the part of the major owner and is inclined by total risk and monitoring expenditures, while the latter is linked to the personality of the main shareholder (Griffith, Redding and Simpson, 2004).

The link between ownership structure and performance of small and medium enterprise has been the topic of a significant and constant argument between researchers (Demsetz and Villalonga, 2001). There has been an extensive research on the association between ownership structure and business performance, but the findings relatively differ from each other (Pivovarsky, 2003; Farooque, Zijl, Dunstan, and Karim, 2007). 12 Journal of Small Business and Entrepreneurship Development, Vol. 4(1), June 2016 In Nigeria, the Central Bank of Nigeria supports the Small and Medium Industries and Equity Investment Scheme (SMIEIS) in their definition of SMEs as an enterprise with a maximum asset base less than N200 million (equivalent of about $1.43 million) excluding land and working capital, and with the number of staff employed not less than 10 (otherwise will be a cottage or micro-enterprise) and not more than 300 (Sanusi 2003; Udechukwu 2003; Akabueze 2002; SMIEIS 2002; and Sanusi 2004). And according to the Central bank of Nigeria, Small and Medium Enterprises (SMEs) are critical to the development of any economy as they possess great potentials for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries.

In Nigeria, there has been gross under performance of the SMEs sub-sector and this has undermined its contribution to economic growth and development. The key issues affecting the SMEs in the country can be grouped
into four namely: unfriendly business environment, poor funding low managerial skills, and lack of access to modern technology (FSS 2020 SME Sector Report, 2007). This study focuses on the managerial skills as it relates to the ownership structure and SMEs performance. However, the study on the effect of ownership structure on SME performance in the Nigerian environment is rare, and the limited identified research on the subject matter has produced conflicting results (Adenikinju and Ayorinde, 2001). This identified problem has brought about a research gap in which the researcher tends to address. Thus, the central objective of this paper is to determine if ownership structure has any significant effect on the performance of small and medium enterprise (SMEs) in the Nigerian environment. This paper is divided into five sections which includes the introduction as section one. Section two presents the literature review while section three is the research methodology, while section four contains the data analysis and interpretation. Section five concludes the paper with the relevant policy recommendations. 

2. Literature Review 2.1 The Concept of Small & Medium Enterprises (SMEs) According to International labor Organization (2005), there is no globally unified agreed definition of Small and Medium Enterprise (SMEs). The study indicated that there have been over 50 definitions was identified in 75 countries and each definition was made to suit specific criterion of enterprises and the stage of its industrial development of a particular country or state. In Nigeria, the definition of small and medium enterprise by the Small and Medium Industries and Equity Investment Scheme (SMIEIS) describes SME as an enterprise with a maximum asset base less than N200 million (equivalent of about $1.43 million) excluding land and working capital, and with the number of staff employed not less than 10 (otherwise will be a cottage or micro-enterprise) and not more than 300 (Sanusi 2003; Udechukwu 2003; Akabueze 2002; SMIEIS 2002; & Sanusi 2004). Even if there are variances in the definition of SMEs, it is generally agreed that SMEs play a significant role in economic development. Almost 10% of entire industrial production and 70% of manufacturing occupation are by SMEs (Osuagwu, 2001). SMEs similarly encourage business through the use of local resources. SMEs are commonly considered as crucial instrument which drives economic development and generate employment opportunities as well as rural development (Osuagwu, 2001). Finance is an essential instrument which promotes the channels of a business as well as enhances performance. No business can be successful or develop without adequate finance. There are different sources of finance to SMEs.

The sources of finance could come from the Commercial Banks, and specialized banks like the micro-finance banks. Micro finance institutions such as cooperative societies and credit unions also finance SMEs. Some organizations also provides source of finance to SMEs through donation for expansion schemes (Carpenter, 2006). In spite of these various sources of finance, SMEs still lack sufficient financing. The finance sources highlighted are inadequate and not constantly accessible. Commercial banks do not assist SMEs because of the apparent hazard in giving loans (Carpenter, 2006). Just as small is attractive, so does it have its difficulties ranging from funding to marketing, raw materials, technology and infrastructural facilities. Due to the risk and uncertainty surrounding small businesses, banks are hesitant to offer SMEs loans which there are no guarantee of recovering (Aigboje, 2006). Another challenge for SMEs is the market. Often, SMEs have no understanding of the market channels (Osuagwu, 2001).

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