An Examination of the Effect of Poor Financial Reporting on SME Growth in Nigeria: A Case Study of SMEs in Lagos Island
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Background of the Study
Financial reporting is essential for measuring the performance and health of a business. For SMEs in Lagos Island, one of Nigeria's most dynamic commercial areas, poor financial reporting has been identified as a significant barrier to growth. Many SMEs fail to adhere to standardized reporting practices, which undermines their ability to attract investors, access credit, and comply with regulations (Aluko & Bamidele, 2023).
The lack of proper financial reporting has contributed to financial mismanagement, limited scalability, and high business failure rates among SMEs in Lagos Island. Studies indicate that adopting standardized financial reporting practices can significantly enhance transparency, accountability, and growth prospects (Onyeka & Adewunmi, 2024).
Statement of the Problem
Poor financial reporting practices among SMEs in Lagos Island have hindered their growth and sustainability. Many SMEs operate informally, with inadequate records and little understanding of financial reporting standards. This has limited their ability to secure external funding and comply with tax regulations. Despite the critical role of financial reporting, limited research has focused on its specific impact on SMEs in Lagos Island.
Objectives of the Study
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To assess the financial reporting practices of SMEs in Lagos Island.
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To evaluate the impact of poor financial reporting on SME growth.
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To recommend strategies for improving financial reporting practices among SMEs.
Research Questions
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What are the financial reporting practices of SMEs in Lagos Island?
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How does poor financial reporting affect SME growth?
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What strategies can improve financial reporting practices among SMEs in Lagos Island?
Research Hypotheses
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H₀: Poor financial reporting does not significantly affect SME growth in Lagos Island.
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H₀: Financial reporting practices do not significantly impact SME performance.
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H₀: Improved financial reporting does not significantly enhance SME growth.
Scope and Limitations of the Study
This study focuses on SMEs in Lagos Island and their financial reporting practices. It excludes businesses outside Lagos Island and non-SMEs. Limitations include challenges in obtaining accurate financial data and variability in reporting standards among SMEs.
Definitions of Terms
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Financial Reporting: The preparation and presentation of financial statements in accordance with recognized standards.
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SME Growth: The increase in size, revenue, or market share of small and medium-sized enterprises.
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Lagos Island: A commercial hub in Lagos State, Nigeria, known for its diverse SME activities.
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