The practice of accounting services OUTSOURCING and Firm performance in Nigerian Small and Medium Enterprises (SME’s). Danjuma Mohammed Faculty of graduate studies university of Colombo danjuma71@fgs.cmb.ac.lk

Introduction Brief about Nigerian economy and its SMEs. Land area: 351,649 sq mi (910,771 sq km) total area 356,667 sq mi (923,768 sq km) Population: ( November, 2015 est.) 192,390,989; UN est. July 2015, 182,201,962 (growth rate: 2.47%) birth rate : 38.08/1000; infant mortality rate: 74.09/1000; life expectancy: 52.62 Economy: The GDP rebased 1990 to 2010 positioned Nigeria as the largest economy in Africa with GDP of USD 594.3 billion (Africa Ranking, 2015). SMEs: There are thirty seven point zero seven million (37.07) MSMEs in Nigeria; out of which ninety nine point eight percent (99.8%) are Micro Enterprises, 0.18 (68,171) percent are Small Enterprises and 0.02 (4,673) percent are Medium Enterprises (SMEDAN, 2015).

introduction There have been strong theoretical evidence which revealed that outsourcing is a positive means by which enterprises change their cost structures overnight. Both variable and fixed cost can be remodeled to truly variable (Baxendale, 2004), this enhances Small and Medium Enterprises (SMEs) growth and development globally (Kamyabi and Devi, 2011; Everaert, Sarens and Rommel, 2010; Dorasamy, Ching, Jayabalan and Raman, 2009; Espino- Rodríguez and Padrón-Robaina, 2004). However, in the case of Nigeria outsourcing particularly in accounting services is inadequate to take the advantage. The SMEs being the largest in manufacturing sector lacks outsourcing strategy as an alternative to diversify the sector which calls for an in-depth study. This study main focus is to examine the factors affecting accounting services outsourcing decision in Nigerian SMEs.

Research Problem Outsourcing in recent time has brought success stories to entrepreneurs and economies. Nigeria being the largest economy in Africa and Micro, Small and Medium Enterprises (MSMEs) is the largest subsector in the manufacturing became quite area of concern. Outsourcing in the SMEs subsector is inadequate despite its perceived benefits. Effort is been made by government to curtail this through the introduction of National Outsourcing Policy and Institutional Framework for Nigeria (NOPIFN) in 2007 though there is change but not as desired. Three years later after establishing NOPIFN, policy makers reviewed the MSMEs policy in 2010 and to no avail. Furthermore, MSMEs policy consistently ran for five years but yet in the trend nothing to write home about. The practice of outsourcing in general and accounting services in particular in the Nigerian SMEs subsector has been widely affected by the choice of governance structure. Incomplete outsourcing contract decisions and infrequent transactions led to adaptation mechanism flaws. Likewise, outsourcing complexities in performance measurement also worsened the contractual relationship between the SMEs and the Vendors. In this situation the parties to the contract tend to be opportunistic which leads to critical issues of legal requirement compliance and self-centered goals attainment that affects the SMEs subsector.

Research Objectives The main focus of this research study is to examine the factors affecting accounting services outsourcing decision in Nigerian SME’s using Transaction Cost Economics (TCE) theory assumptions. Other specific objectives include:  To examine the impact of accounting services outsourcing on Small and Medium Enterprises performance in Nigeria. To examine whether there is a relationship between asset specificity, behavioural uncertainty, frequency of transactions and trust in accountant with SME’s size and years in operation

Research Questions What are the factors affecting accounting services outsourcing decision in the Nigerian Small and Medium Enterprises? What impact do accounting services outsourcing have on the Nigerian SME’s performance? To what extent assets specificity, behavioural uncertainty and trust in accountant relates to SMEs years in operation and size.

Literature Review Accounting services outsourcing through assumptions of TCE theory gives an account of the consequence of governance choice on firm performance. As such transaction characteristics put forth influence on reducing transaction cost of the firm (Kamyabi and Devi, 2011b; Holcomb and Hitt, 2007). Conventionally, the prominent antecedent for outsourcing is short term cost reduction (Kakabadse and Kakabadse, 2000). Outsourcing is an effective cost reduction strategy that enhances competitive advantage of a firm (Lonsdale and Cox, 1998). Outsourcing reduces cost through undermining of vertical integration using responsive technologies in achieving economies of scale (Kakabadse and Kakabadse, 2000). Performance is realized when the key performance indicators were achieved. Cost reduction and competitive advantage are performance indicators if well-articulated and effectively utilized by enterprises will lead to increased productivity and customer satisfaction. Outsourcing accounting services improves cost control by transferring charges from the client to the vendor of an outsourced activity (Lacity, Hirscheim and Willcocks, 1994).

Research Design/Methodology The study is based on a survey research design using quantitative approach through the use of empirical research materials and theoretical arguments relevant to the study. The researcher used both primary and secondary data in pursuance of this search. Survey questionnaires was administered to the respondents on the issues relating to outsourcing accounting services and performance measurement aspect. The questionnaire consist of both close and open ended questions to allow the respondents share their practical experience. The questionnaire was structured based on a five point likert scale ranging from strongly agree (5) to strongly disagree (1). The level of measurement of a Likert scale is ordinal.

Data collection/analysis The use of questionnaires to collect data was employed. Three hundred and sixty (360) questionnaires was administered to the sampled SMEs and two hundred and fifty seven was duly completed and returned. Simple linear regression analysis was run to determine key factors affecting accounting services outsourcing in Nigerian SME’s.

Results and major recommendation The study uncovers that fundamental outsourcing drivers originate from initiatives, focus, finance, cost and growth objectives of an enterprise. Therefore, these factors practically prevail as strategy, cost, function characteristics, and environment. The study also reveals that the predictor variable outsourcing has a significant impact on firm performance (Coefficient=0.7859, p<0.001). Asset Specificity Trust in Accountant and Behavioural Uncertainty are significantly related to SMEs performance (Coefficient= 0.6725, 0.8534 and 0.7537 respectively). The study recommends that SME owners/managers through their Decision Making Units (DMU) to engage in accounting services outsourcing since it has positive effect on firm performance and this will allow them to concentrate on their core competencies.

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