1.1 Background of the Study
Firm growth is very important for business owners, managers and investors alike as it provides a reasonably accurate projection of the performance of the business; sales revenue is the main business through which a firm’s asset and growth opportunities are converted into cash (Hand, 2005). Growth can be measured in terms of revenue generation, value addition, and overall business volume expansion. It can also be measured in terms of qualitative characteristics such as market position, product quality, and consumer goodwill. It is also necessary to comprehend the concept of 'the firm' when examining the growth of a company (Ogundajo, Enyi & Oyedokun, 2019). The definition of what a company is, how much it has grown, and what it delivers to the market all play a role in determining its growth. What assets does it have under its control, and what is its legal structure? Increased profitability is a sign of a company's improving financial success. The ultimate result of a multitude of policies and actions made by the company to show the combined effects of liquidity, asset management, and debt on operating outcomes is described as profitability (Danbolt, Hirst and Jones, 2011). In general, profitability will be utilized as one of the major capitals (together with debt) to sustain long-term viability, as increased profitability will ensure the company's activities, reducing the need to rely on debt for future investments. Financial profitability of a firm will boost the income of its employees, bring better quality products for its customers, and have better environment friendly production units.
Investment is concerned not only with how to generate revenue and profit, but also with how to manage earnings, working capital, develop an overall strategy, and make certain acquisitions (Irom, Joshua, Ahmed & Emmanuel, 2018). The company's achievement in improving financial performance may prompt it to extend its operations. The number of assets owned by the company will expand from time to time, making the company larger. The larger the company's total assets are, the larger it will be (Ogundajo et al., 2019). The company's operational performance will improve as total assets rise. Improved performance of the company cannot be separated from the growth opportunities that are opened to firms in manufacturing sector. Growth opportunity is one key element in the company’s operations and increasing profits. The use of debt in investment as additional funding of the company’s assets is expected to increase the corporate profits.
The company's performance will rise as a result of its ability to manage capital efficiently and effectively, as well as its use of current investment choices. The current worth of predicted cash flows, discounted at a rate that represents both the risk of project financing mix firms and the rate utilized to finance the project, is shown as the company's value (Arikekpar, 2020). The Board of Directors should comprehend the relationship between the expected value of the three primary financial decisions, namely financing, investment decisions, and dividend distribution, if they want to optimize the company's worth. The company’s market value reflects the indications of investor’s response of company’s past performance and its prospects in the future (Akinleye and Akomolafe, 2019).
Growth opportunities may be a substantial component of company value, and proxies for growth opportunities have been used in a wide range of empirical finance research since Miller and Modigliani's landmark study. Prior research has suggested that the level of growth potential can influence capital structure decisions, (Ademola and Tunji n.d), the stock market reaction to finance decisions (Burton, Lonie, and Power 1996, 2000), the level of abnormal returns in mergers and acquisitions, and also executive compensation. However, as growth opportunities are not directly observable, studies have to rely on various indirect measures for the presence of growth opportunities. There is, however, little agreement on how to best measure the presence of growth opportunities, and a variety of alternative measures for the presence of growth opportunities, such as market to book proxies (such as Tobin's Q), earnings proxies (the earnings/price ratio), and dividend proxies (the dividend/price ratio), are frequently used in empirical studies. There are methods, as well as simple proxies, that purport to evaluate firms according to their level of growth opportunities (Ajibola, Wisdom and Qudus; Dahiru, 2016, ) that are designed to quantify the value of a firm’s growth opportunities.
Manufacturing enterprises, by producing commodities for consumption and other necessities in the Nigerian economy, undoubtedly play a vital part in the Nigerian economy. Long and short-term debts, retained earnings, and equity make up the capital structure of manufacturing companies (Inyiama Ugbor, Oluchukwu, R. and Nnenna, 2017). The importance of capital structure to manufacturing enterprises' financial stability, growth, and acceptable returns is critical. The quality of earnings is influenced by the efficient and optimal use of company productive resources. The quality of earnings is influenced by the efficient and optimal use of company productive resources. Rather to earning smoothing and discretionary earnings, investors and financial report users want intrinsic earnings. Previous research has demonstrated that competent and resourceful managers strive for high profitability, and that earnings quality is the most important factor in stock market performance (Dang, Nguyen &Tran, 2020). Earnings quality, according to Inyiama et al., (2017), is the desire of every investor, and it has a direct impact on company market prices as well as a representation of future quality earnings value. The managers' proclivity for a deliberate smoothing of earnings to a predetermined goal, as well as aggressive planning and execution of activities that result in rosy and robust earnings, could have a significant impact on stock prices, and this appears to highlight high stock prices as performing credibly (Kim, Duvernay and Thanh, 2021). The prescriptive nature of the accounting principles and standards allow the managers ample room to unethical discretionary accounting practices and convey wrong and misleading earnings information trend to innocent current and potential investors about the performance of the companies that indulge in earning smoothing.
1.2 Statement of the Problem
Due to the focus of many scholars on the role of company growth as a dependent variable, academics have largely ignored the analysis of firm growth's implications and impacts, and hence its position as an independent variable (Ogundajo et al., 2019). Researchers that studied the effects of firm expansion were especially interested in the management implications (Danbolt et al., 2011). The small number of research that look at the effects of business growth on performance provide theoretically and empirically contradictory reasons and conclusions (Arikekpar, 2020). As a result, a detailed investigation of diverse business development patterns and their corresponding performance repercussions is required to get an understanding of the diverging performance implications of firm growth. It is observed that many studies have been carried out both outside the country and within Nigeria on the growth opportunities and market performance of listed manufacturing firms in Nigeria. Despite showing steady sales growth in the recent past, several companies experience a stagnation or even deterioration in their profit and market performance while others show steady increases in sales as well their performance indicators. However, studies from Nigeria failed to make reference to growth opportunities and market performance and it only concentrated on shareholders’ return and value of manufacturing firms listed on the Nigerian stock exchange. Some of the international articles to financial performance of listed firms manufacturing food products in Vietnam therefore a related study should be carried out in Nigeria to justify Nigeria situation. Consistently, academic research does not provide conclusive evidence of growth opportunities on the performance effects of firm growth. The researcher wishes to bridge this gap by examining growth opportunities and market performance of listed manufacturing firms in Nigeria.
1.3 Objectives of the Study
The main objective of this study is to examine the impact of growth opportunities on market performance of listed manufacturing firms in Nigeria. The specific objectives are to:
- To understand how do sales growth, total assets growth, and equity growth influence the market performance of listed manufacturing firms in Nigeria?
- To understand the extent can growth opportunities be attributed to the variations in market performance among these firms?
1.4 Research Questions
- How do sales growth, total assets growth, and equity growth influence the market performance of listed manufacturing firms in Nigeria?
- To what extent can growth opportunities be attributed to the variations in market performance among these firms?
1.5 Research Hypotheses
This study will be guided with the following hypotheses:
Ho1: There is no significant of sales growth, total assets growth, and equity growth influence the market performance of listed manufacturing firms in Nigeria
Ho2: There is no significant effect of growth opportunities be attributed to the variations in market performance among these firms
1.6 Justification of the Study
Related work have been carried out by different scholars in the field of growth opportunities and market performance of listed manufacturing firms in Nigeria. Kim, Duvernay and Thanh (2021) studied Determinants of financial performance of listed firms manufacturing food products in Vietnam : regression analysis and Blinder–Oaxaca decomposition analysis but the study was carried out in Vietnam therefore a related study should be carried out in Nigeria to justify Nigeria situation. In addition, Akinleye and Akomolafe (2019) have examined Capital Structure and Profitability of Manufacturing Firms listed on the Nigerian Stock Exchange, however the study only shed light on Capital Structure and Profitability of Manufacturing Firms listed on the Nigerian Stock Exchange. Ogundajo, Enyi and Oyedokun (2019) carried out a study on Shareholders’ return and value of manufacturing firms listed on the Nigerian stock exchange, however they failed to make reference to growth opportunities and market performance and it only concentrated that shareholders’ return and value of manufacturing firms listed on the Nigerian stock exchange. The researcher therefore deemed it fits to bridge the gap by examining the Growth opportunities and market performance of listed manufacturing firms in Nigeria
1.7 Significance of the Study
This study will be carried out to understand the trend analysis between Growth opportunities and market performance of listed manufacturing firms in Nigeria. The study will be of benefit to stakeholders and Nigerian financial analysts as a source of information to the development of manufacturing firms in Nigeria through Growth opportunities that are opened to manufacturing firms in Nigeria.
The study will also add to the existing literature and serves as a source of related materials to the upcoming researchers on the impact of Growth opportunities on the market performance of listed manufacturing firms in Nigeria. The study will also serve as a source of information to the private firms and awareness creation of various growth opportunities that can be offered by the market activities in the manufacturing sector.
This study will also raise the interest of upcoming 400 level students about the impact of growing opportunities on the market performance of listed manufacturing firms in Nigeria. Based on the research results, this report will lead to policy initiatives that can bring about change in the manufacturing sector in order to provide growth opportunities to the manufacturing sector to lend to the competitive sectors of the economy in order to effectively support the country's economic development.
1.8 Scope of the Study
This research centers on the Growth opportunities and market performance of listed manufacturing firms in Nigeria. The study would be carried out between September, 2021 and February 2022 (6 months). Manufacturing firms that are listed in the Nigeria stock exchange will be studied and the impact of Growth opportunities on their market performances will be examined from 2011 to 2020. This period is chosen to observe the trend analysis for a period of ten years.
1.9 Limitation of the Study
The study is limited by time. Little time is allocated to embark on the study due to other academic routine that the researcher has to attend to. Nonchalant attitude of the managers in charge of data that will aid to accomplish this study who might think that their precious time is being wasted by supplying necessary data pertaining to this study is another limitation of the study..
1.10 Operationalization of Variables
The dependent and independent variables of the study is operationalized as follows:
Y= Dependent Variable = Return on Asset (ROA)
X= Independent Variable = Growth Opportunities (GOs)
Y1 = (X1, X2, X3) ………………………………..i
Y2 = (X1, X2, X3) ………………………………..ii
Y3 = (X1, X2, X3) ………………………………..iii
Y1 = Return on Asset (ROA)
Y2 = Return on Asset (ROA)
Y3 = Return on Asset (ROA)
X1 = Sales Growth (SG)
X2 = , Total Assets Growth (TAG)
X3 = Equity Growth (EG)
ROA =f(SG) ……………………………………. (iv)
ROA =f(TAG) ……………………………………. (v)
ROA =f(EG) ……………………………………. (vi)
The linear regression models are as depicted below:
ROA= a0+ a1 SG +a2 TAG + a3 EG + m …………….vii
Where: ao= Constant value
a1, a2 and a3 are coefficients of SG, TAG and EG respectively
µ = error term