Abstract

<p>This study investigated the extent to which micro, small and medium scale enterprises (MSMEs) in the Southwest of Nigeria employed capital appraisal techniques in their real assets investment decision- making. The researchers utilized primary data from a survey of 476 firms which data were analyzed using the ordinal logistic regression and Spearman’s Rank correlation methodology. The findings that the extent of usage of appraisal techniques by micro, small and medium enterprise operators in the South-West was infrequent and ranged from ‘rarely’ to ‘often’ and some techniques are more popular than others. (2) The importance of early recovery of investment is the dominant factor that operators of micro, small and medium-scale enterprises considered in choosing from among alternative investment appraisal techniques. (3) There was a positive and significant relationship between the use of appraisal techniques such as payback period, net present value and profitability index and a firm’s profitability. (4) Socio-economic factors such as increases in tax, inflation, high foreign exchange, economic growth, high interest rate, urban development, infrastructural development, and insecurity influenced the decisions of the enterprises to invest in real physical assets. However, tax increase, high foreign exchange and insecurity exerted more significant influence than the other factors across the groups of the enterprises. (5) There was a significant and positive relationship between the use of investment appraisal techniques such as payback period and profitability index and the quality of investment decisions made by the micro, small and medium enterprises. (6) The extent to which operators of these enterprises were aware of investment appraisal techniques was generally low, but the level of awareness of the availability of professional advice ranged from low to medium. The researchers made the following recommendations: Policy makers should give more attention to the development of the managerial competencies and knowledge of owners and managers of micro, small and medium enterprises through the instrumentality of Business Development service providers. This should be employed in addressing the challenges faced by this subsector in tackling the tension between rational and non-rational methods of decision making. Government should provide enabling environment for business linkages between big businesses and smaller enterprises</p>