DETERMINANTS OF LONG TERM INVESTMENT OF QUOTED COMPANIES IN NIGERIA  
ABSTRACT
    The study empirically examines the main determinants of firms’ long-term investment in Nigeria. In order to study this relationship, two firm’s specific variables (assets and profitability) and two macroeconomic variables (RGDP and interest rate) were selected as sample for the study. The empirical strategy adopted in this study is the application of the Correlation technique and the Ordinary Least Squared (OLS) to annual data from Nigeria covering the period 1998 to 2012.
    The results from the empirical analysis reveal that firm’s profitability is a highly significant factor in the determination of firm’s long-term investment in Nigeria. Real Gross Domestic Product (RGDP) does not have any significant positive impact on long-term investment in Nigeria: interest rate has an insignificant negative effect on long-term investment in Nigeria. Firm’s total assets do not have any significant impact on long-term     investment in Nigeria. It was shown that as total assets rise, firms’ long-term investment tends to fall.  
    The study recommends among others that firms should strive to improve their asset base in order to ensure steady profitability and thus boost their ability to engage in more long-term investment that will inadvertently spur the rapid socio-economic growth and development of the country.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
Background to Study                    
Statement of the Research Problem        
Objective of the Study                
Hypotheses of the Study            
1.5    Significance of the Study        
1.6    Scope of the Study                
1.7    Limitations of the Study            
1.8    Definition of Terms            
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                         
2.2    Concepts of Long-Term Investment        
2.3    The Need for Saving and Investment In A
 Changing World                    
2.4    Interest Rate and Long-term Investment        
2.5    GDP and Long-term Investment            
2.6    Cash Flows and Long Term Investment     
2.7    Concept of Profitability and Long-Term Investment    
2.8    Determinant of Firm Capital Structure    
2.9    Long Term Investment and Institutional Investors
2.10    OECD/G20 (2013) Principle 1: Preconditions
for Long-Term Investments                
2.11    The Theory Of The Determinants Of Long-term Investment                     
CHAPTER THREE: METHODOLOGY OF THE STUDY
3.1    Introduction                     
3.2    Theoretical Framework                
3.3    Model Specification                    
3.4    Estimation Technique                    
3.5    Sources of Data                        
CHAPTER FOUR: EMPIRICAL ANALYSIS
4.1     Introduction                    
4.2     Correlation Analysis                
4.3    Regression Analysis                
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND
            CONCLUSION
5.1     Summary of Findings                
5.2     Policy Recommendations            
5.3     Conclusion                        
    References                         Appendix                     
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
    Financing arrangements determine how and the amount of financing that can be obtained from funds providers. The total value of a firm, depend on how well the firm made its long-term investment decisions, as the higher the yield on investments the higher the earnings/income to the firm. The higher the firm’s income/earnings, the higher the flow of gains to the owners of the company (De Angelo and Masulis, 1990).Financing decisions determines the value of the firm’s assets. Consensus on investment decisions and asset values among corporate finance managers of a firm also require decision of how the investments will be financed.The decision on the finance sources according to Buckley et al (1998), depend on five factors, namely:
    (a) tax-reliance on debts reduces taxes paid by the firm and taxes paid by some bondholders. He noted that if corporate tax rates are higher than interest rate on bond, there will be value from using debt finance (b) types of assets the firm has, as financial distress depends on the type of such asset (Barine, 2012). (c) Uncertainty of operating income as firms in this situation have a high probability of experiencing distress even without debt (d) the Pecking Order theory effect, in which firm’s decide for and prefer internal financing to external financing irrespective of the cost of external financing (e) Cost-return payable on borrowed funds.Decision on capital structure is a decision on a firm’s debt/equity ratio.
Finance managers choose the capital structure that maximizes the value of the firm for shareholders.
    As most developing countries during the last century (and in particular the last decades), the Nigerian economy has been characterized by several changes in economic regimes that led to important adjustments in those productive sectors that were deeply in need to remain competitive. These sectors reacted to changes in incentives and policies by adjusting their factor demands and technology in the productive process: in particular, capital accumulation seems to have been severely conditioned by these economic turnovers. In order to contribute to the issue of what determines the desired capital stock at the firms operating in the economy, the main goal of this study is to elucidate on the main determinants of long-term investment decisions in Nigeria. The empirical literature on the determinants of long-term investment behaviour is broad and roughly divided in two groups: time series analyses for one or several countries, and micro-econometric studies using firm level data. Among the former, Loungani and Rush (1995), Blomstrom et al. (1996), Everhart and Sumlinski (2001), Campos and Nugent (2003), and Krishna et al. (2003) are the main recent references, while firm level analyses include among others Chirinko and Schaller (1995), Bloom et al. (2001), and Butzen et al. (2002).
    While some institutional investors are known to demand good corporate practices from the managers of their companies, a lot more is expected of the majority of small holders who are known to be very passive. The shareholders association is expected to be more responsive to ensuring accountability and effective management of their company. Country-specific factors, including governance and institutional frameworks, have a considerable impact on the availability of long-term private investment. Non-financial factors are at the core of creating an attractive investment climate. This is equally applicable to advanced economies and EMDEs. For infrastructure investment in particular, the key challenge is to draw capital to sound investments by improving the investment climate and expanding the pipeline of bankable projects through sound planning and quality design. All countries can act in this space by putting in place the governance, regulatory and institutional frameworks that enhance the willingness of private investors to provide long-term financing for investment, including in infrastructure
1.2    STATEMENT OF THE RESEARCH PROBLEM
     According to Andani and Al-hassan (2005), the decision to start a business or expand an existing one, by increasing the productive assets, involves an implicit decision to raise long term funds/money capital3 to finance the firm’s operations. Firms as deficit spending units, require funds in excess of their own resources whilst individuals and institutions are surplus spending units that have funds in excess of what they require. The role of the capital market to a large extent would ensure the efficient allocation of resources, and this is key for economic growth and development. Osei (1998) observes that a well-organized capital market is central to the mobilization of both domestic and international capital and that capital has been a major constraint to economic development for many developing countries. The capital structure of a firm reflects the relative amount of equity and debt that the firm uses to finance its operations. The firm’s financing policy therefore requires managers to identify ways of funding new investments so as to generate more wealth and ensure firm sustainability (Abor & Biekpe, 2005). A firm’s financing policy may be to choose from among alternative sources: (a) use of retained earnings, (b) borrow by issuing debt4 instruments, and or (c) issue new shares. The mix of the various funding sources that maximizes the firm’s value constitutes the firm’s optimal capital structure. These financing options can be classified as internal and external. While the use of retained or undistributed profits is an internal financing, the use of corporate debt instruments5 and the sale of new equity shares constitute external financing.
    In Nigeria currently, most corporate investments are represented by fixed income assets, whose return and risk have been very attractive. This framework, however, is changing and tends to change even more. The economic policy of the Nigerian government has pursued a path of gradual decline of real interest rate, keeping inflation under control. Moreover, the macroeconomic environment has favored the raising of funds in capital markets by corporate bodies, and this market is becoming increasingly developed. In this context, the need to diversify risks and maximize returns can encourage institutional investors to invest more in equity in Nigeria.
    To this end, the current study is an attempt to empirically examine the main determinants of long term investment of quoted companies within the context of the Nigerian economy. A study of this nature is not without merit in view of the fact that Nigerian economy is one of the leading and largest economies in African continent which has become a center of investment destination/attraction to foreign investors across the globe today.
    More specifically therefore, the study seeks to provide answers to the following research questions:    
(i)    What is the relationship between Gross Domestic Product (GDP) and long term investment of quoted companies in Nigeria?
(ii)    What is the relationship between interest rate and long term investment     of quoted companies in Nigeria?
(iii)    Does total asset has any impact on long term investment of quoted     companies in Nigeria?
(iv)    What is the relationship between profitability and long term investment of quoted companies in Nigeria?
1.3    OBJECTIVES OF THE STUDY
    The main objective of the study is toempirically examine the main determinants of long term investment of quoted companies in Nigeria. Other sub-objectives are to:
(i)    Determine the relationship between Gross Domestic Product (GDP) and     long term investment of quoted companies in Nigeria.
(ii)    Examine the relationship between interest rate and long term investment     of quoted companies in Nigeria.
(iii)    Determine the impact of total asset on long term investment of quoted     companies in Nigeria.
(iv)    Determine the relationship between profitability and long term investment of quoted companies in Nigeria.
1.4    THE HYPOTHESES OF THE STUDY
    The following are the hypotheses to be tested in the study:
(i)    There is no significant relationship between Gross Domestic Product (GDP) and long term investment of quoted companies in Nigeria.
(ii)    There is no significant relationship between interest rate and long term investment of quoted companies in Nigeria.
(iii)    There is no significant relationship between total asset and long term investment of quoted companies in Nigeria.
(iv)     There is no significant relationship between profitability and long term investment of quoted companies in Nigeria.
1.5    SIGNIFICANCE OF THE STUDY
    The study is significant in the following respect:
Firstly, the results from the study will provide relevant information /data to the companies’ shareholders, corporate managers and other relevant stakeholders of the companies about those key variables that tend to significantly influenced the long term investment policy of the companies and thus providing ways to enhancing these factors in the right direction and in the overall interest of the organization.
    Second, the government and policy makers will also benefit from the outcome of the study, as it will useful data on how to best effectively and efficiently managedand regulates the industry for better performance visa-vic the overall economic growth and development of the Nigerian economy.
    Thirdly, investors, potential investors, lenders and borrowers and all stakeholders in the Nigerian industrial sector are all interested in the risk management and profitability of companies, as well as their direction in the country and hence, enable them to make some inform decisions with respect to investment and financing decisions.
     Furthermore, the study will also be relevant to researchers, academia, students of finance and allied disciplines, as it will provide them relevant data to carry out further studies in this area or similar areas if they so wish.
1.6    SCOPE OF THE STUDY
    The study is a Nigerian specific study focusing on three leading banking firms in Nigeria. It covers a period of sixteen years (1998 to 2013), and relevant data shall be sourced from the relevant companies’ financial statements, the Nigerian stock exchange publications and the central bank of Nigeria statistical bulletin (2013).
1.7    LIMITATIONS OF THE STUDY
Some of the limitations of this study are:
    Firstly, the fact that only three companies are used as a sample representative of all quoted companies in Nigerian stock market in the empirical analysis from which further generalization are made; there is the fear that this sample may not fully represent all the quoted companies in the country.  
    Secondly, one cannot guarantee a 100% accuracy of the data used, its measurement, as well as the method of data analysis. However, effort will be made to ensure that errors are minimized so that the results obtained are valid and reliable with respect to the data used.      
1.8    DEFINITION OF TERMS
(a)    QUOTED COMPANIES: This represents companies that are listed on the     floor of the Nigerian stock exchange (with a special focus on the banking sector of the Nigerian economy).
(b)    LONG TERM INVESTMENT: These are investmentsthat have a horizon of one year or more. They are considered a long-term investment for tax purposes. Long-term investments are investments made by a company in     order to secure an additional income stream.Long-term investing is investing with the expectation of holding an asset for an     indefinite period of time by an investor with the capability to do so. Long-term investors are less concerned about interim changes in asset prices, and instead are focused on long-term income growth and/or long-term capital     appreciation both in their initial evaluation and continued interaction with     their investments.
(c)    CAPITAL STRUCTURE: The capital structure is how a firm finances its     overall operations and growth by using different sources of funds. Debt     comes in the form of bond issues or long-term notes payable, while equity is     classified as common stock, preferred stock or retained earnings
(d)    DIVIDEND POLICY:  is the set of guidelines a company uses to decide     how much of its earnings it will pay out to shareholders. Some evidence     suggests that investors are not concerned with a company's dividend policy    since they can sell a portion of their portfolio of equities if they want cash.
(e)    ASSETS: An asset is anything of value that can be converted into cash.     Assets are owned by individuals, businesses and governments. Assets are     often grouped into two broad categories: liquid assets and illiquid assets. A     liquid asset is one that can be converted into cash quickly with little to no     effect on the price received. For example, stocks, money market instruments     and government bonds are liquid assets. Illiquid assets, on the other hand,     are assets that cannot be converted into cash quickly without substantial loss     in value. Examples of illiquid assets include houses, antiques and other     collectibles.
(f)    LIABILITIES:  A company's legal debts or obligations that arise during the     course of business operations. Liabilities are settled over time through the     transfer of economic benefits including money, goods or services.
(g)    PROFITABILITY: The firm’s profitability variable is represented by gross earnings of the bank. This reflects the ability and efficiency of bank management to generate profit