CAPITAL BUDGETING MODERATORS AND SHAREHOLDERS’ WEALTH MAXIMIZATION IN THE NIGERIAN COMMERCIAL BANKS
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CAPITAL BUDGETING MODERATORS AND SHAREHOLDERS’ WEALTH MAXIMIZATION IN THE NIGERIAN COMMERCIAL BANKS
ABSTRACT
Optimal investment decisions maximise the value of shareholders’ wealth while also meeting the corporation’s goals. However, when making investment decisions, internal and external factors, as well as capital budgeting moderators, are considered: inflation, political instability, economic conditions, and management’s risk tolerance.
According to economic theory, good capital budgeting should have a considerable beneficial impact on shareholder value, particularly when the moderators’ decisions are positively aligned.
However, the presence of failed or abandoned enterprises in practice demonstrates that this is not always true. In light of this, it is vital to seek new insights into how capital budgeting moderators affect shareholder wealth in Nigeria’s banking sector.
The study used a descriptive survey research design. The survey included 53,528 employees from Nigeria’s twelve commercial banks. The study included both primary and secondary data.
Taro Yamane’s formula was used to calculate a sample size of 397. Simple random sampling was used to choose sample members. A self-created questionnaire was utilised to collect primary data from top, middle, and lower management personnel at the selected institutions.
The questionnaire was validated, with Cronbach’s alpha tests producing values ranging from 0.76 to 0.91 for the variable constructions. The response rate was 90.7%.
Secondary data were gathered from the public financial accounts of twelve specifically chosen banks from 2004 to 2013. The secondary data was analysed using descriptive statistics, and the original data was analysed using multiple regressions.
The study found that capital budgeting moderators significantly impacted dividend per share (R2 = 0.286, p < 0.05). Capital budgeting moderators had a substantial effect on profitability (R2 = 0.448, P<0.05), as well as retained earnings (R2 = 0.403, P<0.05). Capital budgeting moderators significantly influenced market value (R2 = 0.404, P < 0.05).
Finally, capital budgeting moderators influenced shareholder wealth positively. It was thus recommended that investment managers consider the impact of capital budgeting constraints on shareholder wealth when making investment selections.
This suggests that bank managers should always consider inflation, political instability, risk management, and overall economic conditions while making investment decisions.
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