MMHA 6999 Walden Operating and Financial Performance Indicators Paper Health care leaders depend on sound operating and financial performance indicators to
MMHA 6999 Walden Operating and Financial Performance Indicators Paper Health care leaders depend on sound operating and financial performance indicators to make decisions regarding working capital management, capital budgeting, and resource allocation. These indicators help organizations maximize performance and strategically plan for new initiatives. For this Discussion, you select a health care organization and examine how its leaders and managers use operating and financial performance indicators in their decision making.
To prepare:
Select a health care organization and locate its operating (i.e., utilization rate) and financial data. You may want to use a not-for-profit health care system, as they usually post their annual reports online.
Identify one operating indicator (e.g., length of stay, admission, etc.) and two financial performance indicators (e.g., cash and cash equivalents, accounts receivable, accounts payable, short-term loans, etc.).
Post a cohesive response to the following:
Identify the health care organization you selected, and describe one operating indicator and two financial performance indicators of the organization. Analyze how leaders and managers use these indicators when making decisions about working capital management, capital budgeting, and resource allocation. Support your response by identifying and explaining key points and/or examples presented in the Learning Resources Journal of Financial Management and Analysis, 27(1 ):2014:(41-53)
© Om Sai Ram Centre for Financial Management Research
DOMESTIC DEBT AND STRATEGIC FINANCIAL MANAGEMENT
IMPERATIVES IN NIGERIA: CAUSAL DIAGNOSIS
PRINCE AGUNDU, Ph.D.
J. C. IMEGI Ph.D.
Faculty Member
email: conflinks@yahoo.com
Reader and Head
email: princeagundu@yahoo.com
Department o f Banking & Finance
Rivers State University o f Science & Technology
Port Harcourt, NIGERIA
Abstract
The tendency to continuously procure debts not constructively directed at well thought-out courses remains
quite absurd. With feverish grip of this national concern among Nigerians, key stakeholders seriously lament the
huge debts incurred in the past which did not significantly translate to any meaningful macroeconomic cure of
teething travails. Little was achieved in terms of economic diversification, employment generation, and poverty
reduction. The government may have had good intentions and possibly compelled by strategic constraints of the
time to go borrowing but it came with sorrowing at the time, especially as money supply, inflation and other
macroeconomic variables featured adverse variances in actuality.
In the context of strategic financial management, this study seeks to substantiate the significance and direction
of causality among the afore-mentioned aggregates in the Nigerian economy, the critical analytical variables non
bank debt, money supply, and inflation. Requisite secondary data are extracted from publications of the Central
Bank of Nigeria (CBN) and analytically subjected to F-test, aided by software package for social sciences (SPSS).
The overriding outcome of data analysis establishes significant explanatory relationship among the lagged
variables (non-bank debt, money supply and inflation), with bidirectional and unidirectional causal possibilities.
By these results, it is expedient for government to strategically refocus in order to move from struggle for survival
to creation of productive synergy for sustainable development.
Keywords : Domestic debt, Strategic financial management, Sustainable development synergy
Jel Classifications : C82; E65; F32; G32; H63; NI7
Introduction
management consideration, sourcing of funds is
defined by bight of borrowing (debt) and right to
ownership (equity). Irrespective of the sources
of funds, the operational peculiarities of location,
identification, interm ediation and actualization
are imperative in strategic financing. To this end,
sub-structural units interconnect for the purpose
The resort to dom estic borrowing in Nigeria is
contextually suspect o f the gasping financial
sy stem o f p re v io u s y e a rs . F u n d a m e n ta lly ,
financial systems are driven by the concept of
financial intermediation. Under strategic financial
The authors are grateful to the Journal, JFMA referees and to Professor M. R. K. Swamy for their valuable commnents
and suggestions.
The authors own full responsibility for the contents of the paper.
41
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JOURNAL OF FINANCIAL MANAGEMENT AND ANALYSIS
o f constituting a producti ve system (network )
for s u s t a i n a b l e d e v e l o p m e n t . The f i n a n c i a l
system context in Nigeria is, therefore, shaped
by t he a p e x b a n k , d e p o s i t m o n e y b a n k s ,
merchant /investment banks, development banks,
grassroots banks, insurance and other financial
institutions. Nonetheless, the relative distinction
between the traditional economy and the modern
f i n a n c i a l s y s t e m h a s to be a p p r e c i a t e d .
Characteristically, the traditional economy may
not provide a dynamic functional framework for
m obilizing savings, boosting investments,
t r a c k i n g m a t u r i t i e s , s p r e a d i n g r i s k s and
t r a n s f o r m i n g t hem into s t r a t e g i c s u s t ai n ab l e
wealth. Also, it may neither minimize information/
t r an sa ct i on cost nor p r o vi d e the pl at for m for
indirect finance, whi ch critically supports slowgrowth economies.
On account o f the e con omi c def ici enci es that
trailed the financial system in previous years,
government elected to work more with deficit
b u d g e t s t h a n s u r p l u s b u d g e t s . Th e c r i t i c a l
concern, then, was to cont ai n the unfavorable
impacts public borrowing. Persistent deficit may
force government to print more money to finance
the d e f ic i t, but it t en d s to fuel i n f l a t i o n a r y
pressure in the economy. Government may also be
compelled to increase taxes still for the purpose
of deficit financing, but the option is associated
with declining private investment and consumption
as w e l l as u n d e r m i n i n g a g g r e g a t e d e m a n d
( Ha s sa n1, I me gi 2,). Aga in st this backdrop, this
study adopts non-ba nk debt as focal predictor
variable (whose fluidity hinges on its existence
outside the strictly controlled domain of banks);
while the ot her m a c r o e c o n o m i c var ia bl es are
money supply and inflation. The hypothetical
propositions (HPs) are designed to substantiate
t he s i g n i f i c a n c e a nd d i r e c t i o n o f c a u s a l i t y
between:
* Non-bank debt and inflation rate;
? Non-bank debt and money supply; as well
as
? Money supply and inflation.
Domestic Debts and Facilitating Institutions
With intensified extension of banking facilities to
rural areas and allied communal grassroots in
recent times under strategic financial inclusion
schemes, the boundary between the traditional
system (comprising informal finance institutions)
an d the m o d e r n s y s t e m ( c o m p r i s i n g fo rma l
financial institutions) is eventually becoming too
close to call (Gbosi3, Oyovwi & Eshenake4). For
the e x p e c t e d d e v e l o p m e n t fi nanc e l ever age,
domestic debt may be formally procured through
the instrumentality of treasury bills/certificates
and government domestic stocks (Oriakhi5, Gbosi).
Specifically, the official (statutory) financial market
shops in the Nigerian economy include:
? Core bank financial institutions (CBFIs),
? Non-bank financial institutions (NBFIs),
and the
? Apex bank financial institution (ABFI).
The CBFIs comprise deposit money banks and
merchant/investment banks. In composing their
investment portfolios, CBFIs buy government debt
i n s t r u m e n t s fr om the ABF I on b e h a l f o f the
Nigerian government. They hold part of their liquid
assets in t rea sury securi ti es and earn interest
i n co me t her e from. The NB F I s s u bs cr ib e to
government debt instruments under the auspices
o f s avi ngs i ns tit ut ions , i nsurance companies,
state/local government s, and statutory boards/
corporations, as well as eligible individuals. The
ABFI in Nigeria, which is the Central Bank of
Nigeria (CBN), in addition to the re-discounting
and r e – f a c i l i t a t i n g f u nc t i o ns , int erve nes and
absor bs u n s u b s c r i b e d p o r t i o n o f gov er n me n t
securities. Characteristically, the debt instruments
carry d i ff e re nt tenors , de li n ea te d into short,
medium, and long-term maturities. The short-term
debt, especially treasury bills, matures in 90 days;
the medi um-t erm debt in the form o f treasury
certificates spans over a year; and the long-term
debt (treasury bonds and development stocks) has
tenor o f five years (Central Bank of Ni geria6,
Adebiyi & Ol owookere7). The tenor structure of
domestic debt characteristically determines the
s e r v i c i n g f e a t u r e s , e s p e c i a l l y i n t e r e s t and
Domestic D ebt A nd S trategic F inancial M anagement I mperatives I n N igeria : C ausal D iagnosis
principal payment terms.
Domestic Debt and Strategic Rethinking
Decades ago, petro-dollar windfalls pitched the
Nigerian nation among (medium) rich economies
o f the world, but after some years, a boom-doom
paradox began to play out. Things appeared not
to get b e tte r until the n a tio n was eve n tu a lly
co nfined to d e b t-d e n o m in a te d ec onom ic lifesupport. In recent times, the oil/gas sector which
the natio n s economy over-depends on continues
to m an ife st w orriso m e fragility, w ith foreign
exchange earnings crashing to significant budget
distorting levels. These adverse fiscal conditions
has caused the nation (which still abounds with
s o c i a l and c o m m e r c i a l e n d o w m e n ts ) to be
ironically ranked among the poor nations o f the
world.
These grays and other absurd colorations of an
economy with recurring political hiccups, high
inflation rate and unfavorable balance of payments,
tend to aggravate the survival circumstances of the
nation under the debt-denominated economic lifesupport. Stakeholders, therefore, wish more research
efforts could also be directed at addressing domestic
d ebt issu es in the e c o n o m y , r a th e r than
concentrating on external debts, in spite o f the
obvious skepticism among the citizenry about the
sincerity and objectivity of international financial
institution/foreign donor agency packages. For
instance, in the context o f knowledge management,
the s u b m iss io n s o f Swamy® r e v e a l c r itic a lly
instructive dimensions of such latent reservations,
to the end that:
? Major part o f working technologies in the
world today belongs to the category of
s e c r e t k n o w -h o w , and s o p h i s ti c a t e d
technical know-how is not transferred by
countries;
? In the computers industry, there is much
greater reluc tan ce to make technology
a v a il a b le o u t s i d e o f fo r e i g n d ire c t
investment in majority-owned affiliates;
and
?
43
R e s e a r c h and d e v e lo p m e n t (R & D )
expenditure profile of multinationals in
d e v e lo p e d c o u n trie s (ty p ifie d by the
United States with a record of slightly nine
per cent in other developed countries and
u n d er one per ce nt in the developing
countries), indicate that technology is not
shared but rather monopolized (retained).
F u rth e rm o re , it is c r it i c a ll y in s tru c tiv e , from
M. R. Kumara Swamy Index of Monopoly Power,
for planners/m anagers o f developing economies
to appreciate their peculiar circumstances as they
strive to leverage on frameworks associated with
advanced economies in their sustainable national
developm ent drive. The M.R. Kumara Swamy
I n d e x o f M o n o p o ly P o w e r , d e te r m in e d by
( p’Apv c ), aptly recognizes developing economies
as multinational corporation – controlled, as they
lack capital and technology and operate under
c o n d i t i o n s o f f i x e d c a p a c i t y ; or th e y face
co m p etitio n
am ong
v ario u s
operating
m ultinational corporations drawn from different
countries and engaged in producing different
brands of products.
It is also underscored in the M.R. Kumara Swamy
I n d ex o f M o n o p o ly P ow er th at the cost o f
in stalla tio n o f autom ated equipm ent (average
variable cost) is m ostly high and cumbersome as
a result o f slow rate o f technological progress in
developing economies, implying the adoption of
labour in te n s iv e e c o n o m ic system , o f which
average variable cost tends to dominate the total
cost s tru c tu re . The p ro d u c ts p ro file d by the
m u ltin a tio n a l c o rp o ra tio n s , b ein g h ig h ly
technology driven, can hardly be made in Nigeria
and o th e r d e v e lo p in g e c o n o m ie s , hence the
c o n c e r n a b o u t h o w s t r a t e g i c are the ends
(targets) of the huge domestic debt inflows.
To steer the Nigerian economytowards sustainable
d e v e lo p m e n t, t h e r e f o r e , s tr a te g ic fin a n c ia l
m anagem ent advocacy u nderscores long-term
p r o s p e c t in g , c o m p r e h e n s i v e a n a ly s is , and
i
44
JOURNAL OF FINANCIAL MANAGEMENT AND ANALYSIS
conscientious consideration of fiscal present value
magnitudes. It requires debt managers to refocus
and strategically rethink debt financing aftermaths,
p a r t i c u l a t l y as t h e y b o r d e r on i n s t i t u t i o n a l
insolvency and possible crowding-out of private
savings/investments (Kpopola9, Agundu, Akani &
Mp ia10). Indeed, contemporary researchers on the
Nigerian economy have been challenged to do more
to track and fix the intrigues of public borrowing
p ar ti c ul ar ly from i nt erna l ( d o me st i c) sources
(Agundu”, Agundu & Ogbol e12).
In past d ecades, do me st i c b or r o w i n g was the
direct consequence o f a general weakness o f key
sectors o f the Nigerian nation (Agundu, Akani &
A g b a h i w e 13). The e c o no my for so long could
hardly generate employment for teeming graduates
o f u n i v e r s i t i e s , p o l y t e c h n i c s a nd a l l i e d
e d u c a t i on al /p r of es s io na l i ns tit ut ions ; yet also
a b o u n d i n g in t he l a b o u r m a r k e t was an
overwhelming popul at ion o f other unemployed
(and u ne mp l oy ab l e) me mb er s o f the Ni ger ian
society. Mon et ar y ana ly st s c ont en d that poor
strategic financial management orientation equally
accounts for the m ac r oe co no mi c ailments and
allergies of the time. Near-success syndrome also
characterized many national development plans
( N D P s ) , i n c l u d i n g t he e r s t w h i l e s t r u c t u r a l
adjustment programme (SAP). According to Gbosi,
the SAP in Nigeria clearly underscored:
?
R e s t r u c t u r i n g a n d d i v e r s i f y i n g the
production base of the Nigerian economy;
?
Laying the basis for sustained growth,
especially of the private sector in Nigeria;
?
Improvi ng fiscal aggr egat es, i ncluding
Ni ger ias balance o f payments;
?
Li mit ing un p ro d uc ti v e el ements in the
N i g e r i a n p u b l i c s-ector for i m p r o v e d
efficiency;
?
Establishing realistic and sustained exchange
rate for naira (Nigerias currency), and
?
Reducing the debt burden of the years and
attracting net inflow of foreign capital into
the Nigerian economy, while keeping a lid
on foreign loans.
These fundamental targets of the SAP were to be
a c h i e v e d t h r o u g h t he g l o b a l l y a d v o c a t e d
instrumentality of:
?
Trade and payments liberalization,
*
Tariff reform administration,
?
Tight
fiscal/m onetary
implementation, and
?
Public
enterprise
commercialization.
policies
privatization/
C o n t r a r y to d e v e l o p m e n t a l e x p e r i e n c e s
e l s e w h e r e , t he SAP r a t h e r t h a n e n a b l e the
Ni gerian economy t owards greater employment
g e n e r a t i o n and p o v e r t y r e d u c t i o n end e d up
d i s a b l i n g m a n y c r i t i c a l s u b – s y s t e m s and
structures, thus in ten sify in g divestment,
une mpl oyment and general underdevelopment.
Paradoxically, in the productive sectors of the
economy, there was rather reduction in existing
employment places, with government and major
commer ci al / ind us tri al organizat ions recording
sharp drops in productivity and allied economic
f u n d a m e n t a l s . D e r e g u l a t i o n o f i n t e r e s t and
e x c h a n g e r a t e s a l s o c a u s e d i n c r e a s e in
production cost, significant rise in prices, and
c on s equent i al d i m in i sh i ng purc has ing power.
Huge stock o f uns ol d goods in manufacturing
firms became so encumbering that a lot of them
became frail while the small business enterprises
connected to them began to fail in various parts
o f the country. Not too long, strategic industrial
investments drastically declined, with capacity
utilization ebbing to an all time low, well over 50
per cent ( C e n t r a l B an k o f N i ge r ia , A gundu,
Ayi nde14). These dispensational tales justify the
conceptualization o f the nation as one that had
come a long way, grappling with the challenges
of economic survival, growth and sustainability.
Apparently, SAP-driven macroeconomic reforms
were necessary but not sufficient (without strategic
financial management) to complementarily afford
the m u ch -d e si re d stable fi nancial system and
sustainable development synergy. In the context
o f strategic fi nanci al manage ment , A b o r o d e 15
)
i .
D omesti c D ebt A nd S trategi c F i nancial M anagement I mperati ves I n N i geria : C ausal D iagnosis
underscores the stra teg ic planning perspective,
contending that:
?
Strategic planning is useful if it supports
strategic thinking and leads to strategic
management – the basis for an effective
organization;
?
S t r a t e g i c p l a n n i n g i n v o l v es s tr at egi c
t hinking, whi ch means asking, are we
doing the right thing?
Strategic p l an ni ng i nvol ves maki ng an
assessment
using
three
k ey
re qu ir ement s abou t strategic t hinking,
s u c h as d e f i n i t e p u r p o s e in m i n d ,
u n d e r s t a n d i n g o f t he e n v i r o n m e n t
( pa rt ic ul arl y o f the forces that affect or
impede the f ul fi l lme nt o f that purpose),
and c r ea ti v it y in dev e lo p in g effecti ve
re sponse s to those forces; and
*
S t r a t e g i c p l a n n i n g , w h i c h has b ee n
described as a tool, is not a substitute for
exercise o f judgment by leadership. As a
hammer does not create a bookshelf, so
data analysis and decision making tools of
45
s t r a t e g i c p l a n n i n g do not make
organizations work; they only support the
intuition, reasoning skills, and judgment
which people bring to their organizations.
It is further forewarned that strategic planning,
though seen as d i sci pl ine d undertaki ng, does
not typically flow smoothly from one step to the
next; and should, therefore, be better construed
as a creative process, o f which the fresh insights
o f today may very well alter the decisions of
yesterday. The strategic planning process,
therefore, (inevitably) moves forward and back
s eve ral t ime s b e f or e a r r i v in g at final set of
d ecisions and u ltim ate targets. These
s u b m i s s i o n s , are o f the es se nc e o f s trat egi c
r e v i v a l , r e f o c u s i n g a n d r e v i t a l i z a t i o n for
s ustainable development. In the disposition of
this study, the ec onomi c aggr egat es to watch
are non-bank debt, money supply and inflation
rate.
Methodology Used
This study draws secondary data from publications
TABLE 1
HYPOTHETICAL ANALYTICAL POSSIBILITIES
S/N
Null Proposition
Alternate Proposition
1.
Money supply does not Granger –
Money supply Granger – cause non-bank debt
cau$e non-bank debt
2.
Non-bank debt does not Granger –
Non-baiik debt Granger – cause money supply
cause money supply
3.
Inflation does not Granger –
Inflation Granger – cause non-bank debt
cause non-bank debt
4.
Non-bank debt does not Granger –
Non-bank debt Granger – cause inflation
cause inflation
5.
Money supply does not Granger –
Money supply Granger – cause inflation
cause inflation
6.
Inflation does not Granger cause money supply
Source: AuthorsResearch Findings
Inflation Granger – cause money supply
46
JOURNAL OF FINANCIAL MANAGEMENT AND ANALYSIS
of the CBN for a period o f 36 years (1970-2005).
This analytical time frame covers 16 years pre-SAP,
4 y e a rs c o re -S A P , and 16 y e a rs p o s t-S A P
chronological delineations. The relevant time series
which relate to the afore-specified non-bank debt,
money supply and inflation rate, were initially
subjected to a prio ri consideration and adoption
in the doctoral work of Imegi. The causal directional
perspectives are:
?
Money supply in relation to non-bank debt,
?
Non-bank debt in relation to money supply,
?
Inflation in relation to non-bank debt,
?
Non-bank debt in relation to inflation,
?
Money supply in relation to inflation, and
?
Inflation in relation to money supply.
These research variables are analyzed within the
framework of general facilitating functions, such
as:
y .=
n ix i + e ,
Y2=
? i i X ii +
Equation 1
Equation 2
e2
where:
y ,. y 2
=
X.I, X..II
=
Criterion variables; and
Vector of predictor variables.
The stu d y v a r ia b l e s , n …
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