FINANCIAL MANAGEMENT IN GOVERNMENT OWNED COMPANIES

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FINANCIAL MANAGEMENT IN GOVERNMENT OWNED COMPANIES

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In most Countries of the world, particularly the developing ones, the decades following World War II (particularly, the 1960s and early 1970s) witnessed a massive intervention of the government in national economics. One of the ways through which the government intervened in the economies of these countries was by establishing public enterprise state-owned companies. According to Ezeani (2006:211) stated “that public enterprise was seen as veritable tools for achieving national socio-economic development”. Thus, since the 1950s, successive governments have used public intervention in the development process. This was eloquently stated in the Nigeria Second National Development plan (1970-74) thus:

‘’Their primary purpose is to stimulate and accelerate National economic development under conditions of capital scarcity and structural defects in private business organizations. There are also basic considerations arising from the dangers of leaving vital sector of the national economy to the whims of the private sector often under the direct and remote controls of foreign large scale industrial combines’’

Also according to Nwoye (2001:1) opined “that there are many reasons for establishment of public enterprises, which one of them is development emphasis, he further stated that in many developing countries, the resources available to the private sector are not adequate for the 2 provision of certain goods and services for example, the investment required in the construction of a hydroelectricity-generating plant or a water scheme for large urban center are quite enormous and the returns on such investment will take a very long time to realize. Ozor (2004:10) stated that “like many other British-ex-colonial territories, Nigeria realized soon after political independence that she still had to battle for her economic independence. Her weak economic base limited infrastructural facilities, paucity of social service-providing inadequate local financial entrepreneurship etc. Furthermore, Adeyemo (2005:224) stated that “other factors that accelerated the growth of Nigeria’s public sector was the indigenization policy of 1972 as enacted by the economy, the policy further provided much needed legal basis for extensive government participation in the ownership and control of significant sectors of the economy”. Ugorji (1995:541) also observed that “public enterprises have also been established for political reasons; many government undertakings are used to provide jobs for constituents, political allies, and friends, Public Enterprises and the distribution of government employment were further been defended in the need to maintain “federal character” and promote national integration. Consequently, the Public Enterprises especially in developing countries became active in likely sectors such as manufacturing, 3 construction, finance, services, utilities, transportation, agriculture, natural resources, etc. According to Ezeani (2006:21) stated that “the colonial government established some public enterprises to provide essential services like electricity, railway, telecommunication and pipe borne water to mention but a few.” Also according to Obadan and Ayodele (1998:1) they opined that “it is in order to put socio-economic development underway and also guard government finances under conditions of capital scarcity and structural detects in private business organizations, Nigeria and most other African countries, regardless of Ideological dispositions, unavoidably made fairly extensive use of public enterprises for resource mobilization and allocation, particularly within the utilities and social services sectors as (NTA, Awka) in the 1950s through the 1960s. In both technical and economic perspectives Public Enterprises are seen as:1.2 STATEMENT OF THE PROBLEM AND PURPOSE OF THE STUDY

The statement of the problem is to carryout an investigation into the field of financial management practice in government owned companies, with particular reference to Nigeria limited and also highlight the financial problem facing these companies in this problem the main purpose of this study is to:

To identify and examine some factors that militate against successful financial management of government owned companies

To find out why those problem have been difficult to solve and make recommendation and suggestion on how they should be solved.

Explore other areas which in the writers opinion are relevant for effective management of funds.

To recommend generally and specifically the study of financial management.

1.3 RATIONALE OF THE STUDY

Financial management vary necessary according to the nature of the enterprise concerned, once the corporation objective have been defined, the examination of the whole business structure and the related financial need as follows: The goal and objective of financial management is to maximize the shareholder wealth by this view they should formulating the firms objective in terms of the share holder interesting the main base of financial market is implemented. That mean the firms with better performance will have higher stock price and additional funds can be commonly pressure the aims of financial management is the maximization of the firms value (i.e. profit maximization relative to investment). To obtain these, some unprofitable short run may be required.Financial management objective of the company is to maximize its value to their share holders.

1.4 SIGNIFICANCE OF THE STUDY

Financial management is very important for the achievement of the firms goal and objective. Because it help the financial manager to carry out their effective project financial management in government owned companies help to see how the field of financial management will contribute to a better improvement of the study of finance, there by minimizing the result of our investment and divided decision by companies.

It helping the finance manger for decision making by planning for futuristic event that may occur for day to day business activities.

1.5 DEFINITION OF THE TERMS

Financial management may be defined as the function and areas of responsibilities of financial manager such as.

The raising of funds to finance project.

The employment of funds to raised in viable project

The management of the cash flow arising from these project

The return of funds to the funding sources. This fund are raised from financial market and allocated among different uses the flow of fund involved in the operation of the enterprise are managed. The financial management in the provision of fund of time it is required any person responsible for finance in any form, is confronted with the prospects of inflow and outflow at receipts and payment and they arise.

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