an empirical study of dividend policy of quoted companies in nigeria

7/28/2019 AN EMPIRICAL STUDY OF DIVIDEND POLICY OF QUOTED COMPANIES IN NIGERIA

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GLOBAL JOURNAL OF SOCIAL SCIENCES VOL 8, NO. 1, 2009: 85-101

COPYRIGHT BACHUDO SCIENCE CO. LTD PRINTED IN NIGERIA. ISSN 1596-6216AN EMPIRICAL STUDY OF DIVIDEND POLICY OF QUOTEDCOMPANIES IN NIGERIA

W. A. ADESOLA ANDA. E. OKWONG(Received 20, January 2009; Revision Accepted 6, May 2009)

ABSTRACT

This study attempt to evaluate the observed dividend policy of a cross section of 27 Nigeria quotedcompanies using theories tested to explain dividend behavior of those firms. These theories which areseveral and varied; even contradict each other and considerable doubt exist as to which theory bestrepresent the observed dividend behaviour of Nigerian firms; hence the need for this study. To carry out thisstudy a more recent data for the period (1996 2006) were reviewed and a model with the necessary policyvariables constructed. Factor upon which dividend decisions are based are identified and the magnitude oftheir effect estimated. Our estimation reveals that the traditional factors are significant in explaining andpredicting their dividend decision within the period under review. The result provides strong support for theexplanatory or predictive power of Lintners model. Also, factors which attempt to explain variations in sharemarket prices were identified, and the magnitude of their effect estimated. The result confirms that share

market price is a representation of market valuation of dividends.

KEYWORDS: Dividends, Quoted Companies, Dividend Theories, Share Market price

1.0 INTRODUCTION

The finance profession has long struggledto develop a simple satisfactory model of dividenddetermination without much success. Modiglianiand Miller (1961) show that in perfect capitalmarket with no information asymmetry andpredetermined investment decision, the value ofthe firms is independent of the financing decisions.Hence, a firms financing decision includingdividends, have no effect on the value of the firm,nor the distribution of wealth between classes ofsecurity holders. However, in an imperfectsettings, dividend can influence shareholderswealth by providing information to investors orthrough wealth redistribution among claimants.

With information asymmetry, Bhattacharya(1979) demonstrates that dividends provideinformation about the firms future cash flow andthus the dividend decision can change a firmvalue. Fama and Babiak (1968) and Jensen andMeckling (1976) demonstrated another potentialreal impact of financial decision transfer of wealth

between classes of claimants can occur in theabsence of imperfect priority rules. However, Kalay

(1982) finds that firms generally are under theselimitations. The payment of dividends conveys toshareholders that the company is profitable andfinancially strong. An increase in payment ratiosignals to shareholders a permanent or long-termincrease in firms expected earnings. Accordingly,the price of share may be affected by changes individend policy. Dividend may offer tangibleevidence of the firms ability to generate cash, andas a result, the dividend policy of the firm affectsthe share price (Solomon, 1963). The marketvalue of share is affected not because of thechange in dividend but because of the informationabout changes in the future expected earningsconveyed through the payment (Pandey, 2000pp.765).

It is contended that dividends are relevantbecause they have informational value. It is alsobelieved that information content of dividend cango a long way to affect companies share marketprice by sending signals to prospective investors.

Some of the pertinent problems are: why

do companies pay dividend? What actuallyinforms the dividend policy? What are theconstraints of paying dividends and what should be

85

W. A. Adesola, Department of Computer Science, Cross River University of Technology, CalabarA. E. Okwong, Department of Computer Science, Cross River University of Technology, Calabar


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the form of dividend? Do dividend matters? Of allthe theories of dividend policy, which of one thembest predict dividend policy behaviour in a specificcase e.g. quoted firms in Nigeria? Can themagnitude of the factors that influence dividendpolicy be used in predicting market share prices ofthe firms under review?Answering these questions is absolutely not aneasy task. Therefore, this study will seek toempirically analyse and evaluate, usingconventional and non-conventional approach toinvestigate a number of factors related to theseproblems and seek how to evolve a long-termdividend policy and hence use the informationalcontent of the dividend as declared by quotedfirms.

The primary emphasis of this researchwork therefore is to identify the factors thatinfluence the dividend policy of cross section ofNigerian quoted firms between 1996 and 2006excluding 1998; to assess the stability of the result

over time; and to test the relevance or applicabilityof dividend theories to share price behaviour inNigeria.

2.0 THEORETICAL ISSUES ANDLITERATURE REVIEW

Financing, investment and dividenddecisions are the basic components of corporatepolicy. Financing decision requires an appropriateselection and combination of capital from availablesources, investment decisions are concerned withthe efficient deployment of capital funds while,

dividend decision involves the periodicdetermination of proportion of a firms totaldistributable earnings that is payable to itsshareholders. The larger the dividend paid, theless funds are retained for investment and themore the company will have to rely on othersources of long term funds (such as additionalissues of equity and or debt capital) to financeprojects.

In developed countries, the decisionbetween paying dividend and retaining earningshas been taking seriously by both investors andmanagement, and has been the subject ofconsiderable research by economists in the lastfour decades (Lintner, 1956; Britain, 1964;Modigliani and Miller, 1961; Petit, 1976; Black andScholes, 1974; Michael, Thaler and Womack,1995; Dhillon and Johnson, 1994; Amibud andMurgin, 1997; Chariton and Vafeas, 1998) as citedin Adelegan(2001).

In Nigeria, until 1972/73 when the firstindigenization decree was promulgated mostquoted firms were foreign owned? With thepromulgation of the First and Secondindigenization decree, foreign participation wasrestricted to forty per cent of the share capital.However, presently a major percentage of thesample firms in this study have foreign affiliation orinvestors. There is a disagreement over what typeof investor is most interested in dividend. Thequestion is whether individual investors, localinvestors or foreign investors are more interestedin dividend than each other. The argumentcentered on whether investors are expectinggrowth or cash flow.

According to Glen et al 1995, in manycountries, management believes that localindividuals and institutional investors are moreinterested in growth and re-investment of earningsthan foreign investors who are more interested individend. Multinational companies pay outproportionately more dividend than whollydomestic companies (Adelegan, 2001).

Dividend decision involves a trade-offbetween the retained earnings and issuing newshares. Over the years, the relationship betweendividend policy and the value of the firm have beenadvanced by two school of thoughts of dividendtheories. Those that claimed that dividends do notmatter and those that claim they do. In summary,these theories can be grouped into two categoriesviz: -Theories which consider dividend decision to beirrelevant and Theories, which consider dividenddecisions to be an active variable influencing thevalue of the firm.

The proponents of the dividend relevanceschool called the traditionalist or bird-in-handpropositions or rightists offered the first explanationfor the relevance of dividend payment. Grahamand Dodd (1934) founded the school. Latersupport was offered by Lintner (1956), Gordon(1959), Brittain (1964) etc.The model adopted in this study is greatlyinfluenced by John Lintners (1956) partialadjustment model/smoothing theory as modifiedby Brittain (1964) and Chariton and Vafeas (1998).

2.1 Empirical Literature review

The earliest major attempt to explaindividend behaviour of companies has beencredited to John Lintner (1956) who conducted hisstudy on American Companies in the middle of1950s. Since then there has been an ongoingdebate on dividend policy in the developed

86 W. A. ADESOLA AND A. E. OKWONG


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markets resulting in mixed, controversial andinconclusive results.

This issues did not receive any seriousattention among academic scholars in Nigeria until1974 when Uzoaga and Alezienwa attempted tohighlight the pattern of dividend policy pursued byNigerian firms particularly since and during theperiod of indigenization and participationprogramme defined in the decree. Their studycovered 52 company-years of dividend action (13Companies for four years). They claimed that theychecked but found very little evidence to supportthe classical influence that determine dividendpolicies in Nigeria during these period. Theyconcluded that fear and resentment seem to havetaken over from the classical forces.

However, Inanga (1977) and Soyode(1975) commented on the work of Uzoaga andAlozienwa. Inanga concluded that the problemarising from the change in dividend policy can beattributed to the share pricing policy of the CapitalIssue Commission (CIC) which seemed to haveignored the classical factors that should govern the

pricing of equity shares issues. This in turn madecompanies abandon all the classical forces thatdetermine dividend policy. Soyode criticizedUzoaga and Alozienwas work on the ground that itglossed over some important determinants ofoptimal dividend policy and questioned certainconclusions made in the study because they areinadequate or a mistaken evaluation.

Furthermore, Oyejide (1976) empiricallytested for company dividend policy in Nigeria usingLintners model as modified by Brittain. Hedisagreed with previous studies and concludedthat the available evidence provides a strong and

unequivocal support for the conventional devicesfor explaining the dividend behaviour of Nigerianlimited liability business organization..

Nyong (1990) conducted a study ondividend policy of quoted companies in Nigeria

using the behavioural approach between 1983 1987, to determine the factors that influencedividend policy of cross section of Nigeria quotedcompanies and also to assess the magnitude ofthese factors in predicting the observed shareprices of the companies, he observed amongothers that the conventional Lintners modelperforms creditably well.

Adelegan (2001) in a more recent study ofthe impact of growth prospect, leverage and firmsize on dividend behaviour of corporate firms inNigeria between 1984 1997; observed that theconventional Lintners model does not performquite creditably in explaining the dividendbehaviour of corporate firms for the period underreview. Supports that factors that mainlyinfluenced the dividend policy quoted firms areafter tax earnings, economic policy changes (dueto the partial liberation of the indigenization decreein 1989 and the subsequent simultaneous abolitionof the indigenization decree of 1995), firm growthpotentials and long term debts.

However, Adesola (2004) in his study of

dividend policy behaviour in Nigeria using Lintnersmodel as modified by Brittan between 1996 2000appears to agree with Oyejide and Nyongs viewthat there is substantial and unequivocal supportfor the Lintners model.

3.0 METHODOLOGY:Data are derived from secondary sources.

Pool of data were extracted from publication of theNigerian stock exchange(NSE) factbook 2001,2005, and 2007 editions, Best shares selectionguide various issues published by Flarmark andcompany, SEC annual reports. The sample data

used contains all the one hundred and forty-fivecompanies quoted on the Nigerian stock exchangeas at 2007. However, only annual reports of 27companies have all the data that is required for thisstudy. Samples cover 15 sectors of NSE.

3.1 Model SpecificationThe following models were built for the study:

(a) Dividend Payment Equations1. DIVt = b0 + b1EARNt + I2. DIVt = b0 + b1EARNt + b2DIVt-1 + II3. DIVt = b0 + b1GRTt + b2SZt + b2CSt + III(b) Mean of Dividend Payment Equation1. MDIV = b

0+ b

1MEARN + IV

2. MDIV = b0 + b1MGRT + b2MSZ + b3MCS + V(c) Share Market Price Equation

SPt = b0 + b1DIVt + b2PBTt + b3EPSt + b4ASSETt+ b5EARNt + b6DEBTt + b7EQUITYt + VI

SPt = b0 + b1DIVt-1 + b2PBTt-1 + b3EPSt-1 + b4ASSETt-1+ b5EARNt-1 + b6DEBTt-1 + b7EQUITYt-1 + VII

AN EMPIRICAL STUDY OF DIVIDEND POLICY OF QUOTED COMPANIES IN NIGERIA 87


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Where: GRT = Growth = Growth proxied by market value of equity divided by book value of Assets, SZ= Size = Size proxied by natural logarithm of total asset i.e. In (total Asset), CS= Capital structure

= Debt divided by market value of equityb0, b1 and b2 are regression parameters, DIVt = Dividend payment in year t, DIVt-1 = Dividend payment inyear t-1, EARNt = Total earnings in year t, GRTt = Firm growth in year t, SZt = Size of firm in year t, CSt= Capital Structure in year tMDIV = Mean value of Dividend Payment in (1996 2006)MEARN = Mean value of Earnings in (1996 2006)MGRT = Mean value of Growth in (1996 -2006)MCS = Mean value of Firms Capital Structure in (1996 2006)SPt = Stock price for year t, PBTt = Profit Before tax in year tEPSt = Earnings per share in year t, ASSETt = Total Asset in year tDEBTt = Debt in year t, EQUITYt = Equity in year tPBTt-1 = Profit before tax in year t-1, EPSt-1 = Earnings per share in year t -1ASSETt-1 = Total Asset in year t-1, DEBTt-1 = Debt in year t-1EQUITYt-1 = Equity in t-1

4.0 PRESENTATION, ANALYSIS ANDINTERPRETATION OF DATA

4.1 Presentation and AnalysisSample data used covers the period 1996,

1997, 1999, 2000, 2001, 2002, 2003, 2004, 2005,

and 2006; and the 27 companies covered span 15sectors namely: Automobile and Tyre (DunlopNigeria Plc), Banking (Access Bank Nigeria Plc),Breweries (Guinness Nigeria Plc and NigerianBreweries), Building Materials (Ashaka CementPlc, Cement Company of Northern Nigeria),Chemical and Paints (Berger Paints Nigeria Plc),Conglomerates (Chellarams Plc, CFAO NigeriaPlc, John Holt Plc, UAC of Nigeria Plc, UNILEVER

Nigeria Plc), Construction (Julius Berger NigeriaPlc), Engineering Technology (Nigerian Wire andCable Plc), Food Beverages and Tobacco(Cadbury Nigeria Plc, Nestle Nigeria Plc, NigerianBottling Company Plc), Health Care (May andBaker Nigeria Plc, Neimeth International Pharmacy

Plc, Glaxo Smithkline Consumer Plc),Industrial/Domestic Product (B.O.C. Gases Plc,Nigerian Enamelware Plc), Insurance (Law Unionand Rock Insurance Plc, Niger InsuranceCompany Plc), Petroleum Marketing (Mobil OilNigeria Plc, Chevron Oil Nigeria Plc), Printing andPublishing (Longman Nigeria Plc) and Textiles(United Nigeria Textile Plc).

4.2 DATA ANALYSISIn this section therefore, we carry out the analysis of the estimated results. The analysis is on

equation basis, starting with the dividend payment equation as below:

Equation 4.1DIV2001 = -54083.4 + .00484EARN21 + 1.296DIV2000

(-0.546) (0.725) (14.349)*R

2= 93.8% R

2(adj.) = 93% F-stats = 127.755 DW =1.504

Equation 4.2DIV2005 = 207648.5 + 0.004872EARN25 + 0.961DIV2004

(0.693) (0.528) (9.961)*R

2= 88.6% R

2(adj.) = 87% F-stats = 54.330 DW = 2.642

Equation 4.3DIV2006 = -26305.3 - 0.019EARN26 + 1.219DIV2005

(-0.063) (-1.908)*** (11.484)*R

2= 95% R

2(adj.) = 93.9% F-stats = 85.261 DW =1.244

Equation 4.4SP2001 = 0.634 + 4.189E-06DIV2001 + 9.046EPS2001

(0.302) (2.864)** (11.962)*R

2= 90% R

2(adj.) = 88.9% F-stats = 89.544 DW = 1.801

Equation 4.5SP2006 = -3.662 + 8.232E-07DIV2006 + 22.668EPS2006

(-0.440) (0.469) (12.040)*R

2= 95% R

2(adj.) = 93.9% F-stats = 85.113 DW = 1.255



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Equation 4.6MDIV = -218471 + 276118.4MEPS - 0.032MEARN - 5100.005MGRT + 30970.07MSZ

(-0.141) (2.205)*** (1.481) (-0.054) (0.265)R

2= 18.6% R

2(adj.) = 3.8% F-stats = 1.255 DW = 1.461

the numbers in bracket represents t-value, whilethose one directly beneath the bracket representsthe parameter estimates. * Indicates that theestimated coefficient is statistically significant at1% level of significance, ** Significant at 5% levelwhile *** indicate Significant at 10%. Forconvenience in analysis, the regression results arepresented in three parts reflecting the threedependent variables on which they are based.The first part deals with the explanations ofvariations in the level of dividend acrosscompanies in 2001, 2005 and 2006. The secondpart considers the explanations for the variations inshare prices across companies based on pooledtime series and cross-sectional data set (1996 2006). The third part examine the explanation forthe variations in mean of dividends acrosscompanies based on pool-time series and cross

section data set from 1996 to 2006 to test thestability of the result over time.

(a) Dividend Payment for 2001, 2005 and2006Here we use three regression equations

i.e. equation 4.1, 4.2 and 4.3 to explain variationsin the level of dividend payment across companiesin 2001, 2005 and 2006 as a case study. Equation4.1 hypothesize that dividend payment in the year2001 is a function of earning in 2001 (EARN21)and pervious year dividend i.e. dividend paymentlagged one (DIV 2000). Testing the economic a

priori, the constant term has a negative signinstead of the expected positive sign this impliesthat the autonomous leverage decrease when theexplanatory variables are fixed. All the otherparameters estimates are correctly signed insupport of the priori expectation. The parameterestimate of previous year dividend payment i.e.DIV2000 is statistically significant at one percentlevel of significance this means that pervious yeardividend payment exerts significant influence oncurrent dividend payment and hence, this providea strong support for the explanatory or predictorypower of lintners model. The coefficient of multipledeterminations (R

2) of 0.93 or 93% indicates that

about 93 percent variations in the observedbehaviour in the dependent variables is explainedby the model. The remaining 7% may better beaccounted for by other error term. The high R

2

indicated that the model fits the data well and isstatistically robust; there is a tight fit of the model.

The F-statistic 127.755 is significant at the1% level considering the table F-statistic (F0.01, (2,7) = 9.55). The calculated F-statistic is greater thanthe table F-statistic (i.e. 127.755 9.55), therefore,it is significant at 1% level. This buttress the factthat the high R2 is better than would haveoccurred by chance. Another essential test is thesecond-order or econometric criteria; the DW-Statistic is 1.504, the table DW at 5% levelindicates the following, given K

1= 2 (excluding the

constant term) and sample size (n) equals 10; thendL = 0.697, du = 1.64), 4-du= 2.359 and 4 dL =3.303. Based on the decision rule, the calculatedDW of 1.504 lies between the lower dL (0.697) andupper du (1.641). There is inconclusive evidenceregarding the presence or absence of positive firstorder serial correlation.

In equation 4.2, We regress DIV payment

in the year 2005 on EARN for the year 2005 andDIV payment lagged one year that is 2004. Thequantitative result shows that all parameterestimates including the constant term are correctlysigned. Also, in this equation just like equation4.1, the parameter estimate of previous yeardividend payment i.e. DIV2004 is the onlyparameter that is statistically significant and issignificant at 1% level of significance. Specifically,the DIV2004 comes out with an estimatedcoefficient of 0.961. This means that an increase ofone percent in DIV2004 will increase the dividendpayment in 2005 by 0.961. And hence, a strong

support for the explanatory or predictive power ofLintners model. The coefficient of multipledetermination (R

2) of 87% shows that the

proportion of dividend payment explained by theregression equation is quite high; the implicationof this result is that the factor that enter into thedecision calculus for dividend payment in the year2005 is previous year dividend payment i.e.DIV2004. The Adjusted R

2is equally significant at

one percent level based on the result of F-statisticof 54.330 which is greater than the table F-statisticof 9.55 at 1% level of significance. Also based onDW-Statistics test, there is no serial correlation.

In equation 4.3, We regress DIV2006 onEARN26 and DIV2005. Testing the economic apriori, the constant term and the earning for year2006 (EARN26) are negatively signed instead ofthe expected positive sign. Only dividend paymentlagged one year that is DIV2005 is correctlysigned. All parameter estimates in the quantitative



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result are statistically significant except theintercept. EARN26 is statistically significant at 10%level of significance while DIV2005 is statisticallysignificant at 1% level of significance, specificallythe EARN26 comes out with an estimatedcoefficient of 0.019 while DIV2005 come out withan estimated coefficient of 1.219. This result alsoprovides a strong support for the explanatorypower of Lintner model. The proportion of dividendpayment explained by the regression equation isquite high, being approximately 93.9 percent. Theimplication of this result is that the factors thatenter into the decision calculus for dividendpayment in year 2006 in order of importanceinclude past year dividend followed by currentearning. The F-statistic of 85.261 is significant atthe one percent level of significance consideringthe table F-statistic of 9.55. i.e. (85.261 > 9.55) thissupports the fact that the high R

2of 93.9 percent

did not occur by chance. The DW test result of1.244 lies between the lower dL =0.697 and theupper du = 1.641 region which suggest based ondecision rule that there is inconclusive evidence

regarding the presence or absence of positive first-order serial correlation.

(b) Determinant of share market priceTwo equations are formulated in this

section to assist in explaining variations in sharemarket prices. They go beyond the descriptivenature of Linters model to provide motivations forthe payment of dividend in the first place. Theinterpretations of the empirical result are as givenbelow:

In equation 4.4, We regress stock pricefor 2001 i.e. (SP2001) on dividend payment in the

same year i.e. (DIV2001) and earnings per sharein the year i.e. EPS2001. The quantitative resultshows that: The constant term has the right sign(positive) and conforms to econometric a prioricriteria. This means that when the independentvariables or explanatory variables are zero, otherfactors not specified in equation 4.4 will still causeSP2001 to increase at the rate of 0.634 per cent.The quantitative result also shows that the sign ofthe coefficient of DIV2001 is in agreement withGordon Model and also signaling theory ofdividend policy. This implies that the realizedpositive relationship between stock price in 2001and dividend payment in the same year is in linewith theoretical expectation. Also, worthy of note isthat the t-value of 2.864 is statistically significant atfive percent two tailed test level of significance.Our estimated result of earnings per share in 2001also indicate the relationship to be positive andstatistically significant at one-percent level of

significant and hence a strong support for theexplanatory or predictive power of GordonBehavioral model and Bhattacharyas signalingtheory model.

Equation 4.4 indicates that the bestexplanation for current share market price iscurrent earnings per share (EPS2001) and currentdividend (DIV2001). These two factors explainover 88 per cent of variations in share market pricefor the year under review. This is confirmed by thefact that the adjusted R2 is statistically significant atone percent level based on the calculated f-statistic result of 89.544. The DW statistic (1.801)shows that there is no serial correlation in theresidual of the model. Therefore, our estimatesare reliable.

In equation 4.5, We postulate that stockprice in 2006 is a function of Dividend payment in2006 and earning per share (EPS2006) in 2006.The quantitative result shows that even thoughDividend payment in 2006 indicate a positiverelation, the t-value of 0.469 is not statisticallysignificant. The implication of this is that DIV2006

has no significant influence on the determination ofstock price value in 2006. Worthy of note is thatour estimated result of earning per share in 2006 isstatistically significant at one percent level ofsignificance. This signifies that the most importantfactor in the decision calculus for stock pricebehavior in 2006 is earning per share. Themeasure of the explanatory power of theregression equation using adjusted R

2shows that

93 percent of the variation in stock price in 2006 isexplained by the regression equation. This valueof adjusted R

2when tested with F-statistic is

statistically significant at one per cent level of

significance. The DW test for the incidence ofserial correlation shows inconclusive evidenceregarding the presence or absence of positive first-order serial correlation.

(c) Mean of Dividend PaymentFor this section, we formulate one

regression equation to determine the mean ofdividend payment. In equation 4.6, we regressmean of dividend on mean of earnings per share(MEPS), mean of earnings (MEARN), mean ofgrowth (MGRT) and mean of log of asset i.e. size(MSZ). The quantitative result shows that out ofthe four explanatory variables, it is only mean ofearnings per share that is statistically significant,being significant at 10 per cent level ofsignificance. The relevant implication of this resultis that the influence of these three explanatoryvariables on the dependent variable is insignificantand could be considered as not accounting for



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variations in the dependent variable. The value ofthe adjusted R

2of 3.8 percent implies that the

equation does not give a good fit to the empiricalsample data and the omitted variables might haveperformed better. The DW test shows inconclusiveevidence regarding the presence or absence ofpositive first order serial correlation.

4.3 DISCUSSION OF FINDINGSThe main findings of this study are:

1. The dividend policies of quoted companiesin Nigeria are significantly influenced bytheir earnings and previous year dividendand that because of the reluctance to cutdividends, companies only partially adjusttheir dividends to changes in earnings.

2. Average earning per share is thesignificant determinant of Averagedividend payment, which confirms the factthat the most important decision calculusfor payment of dividend is the currentearning.

3. Growth prospect and firm size has no

impact on the dividend behavior of quotedfirms in Nigeria for the period underreview.

4. That both current dividend and earningsper share or earnings are significant inexplaining the observed differential sharemarket prices of companies. The fact thatthe magnitude of the impact of earnings orearnings per share on share market pricesis greater than that of dividend paymentsuggest that the main determinant ofmarket share value for Nigeria firm is nolonger dividend but earnings for

recent data. This is inconsistent withfindings by Graham, Dodd, and Cottle(1962), Nyong (1990), Adesola (2004) andthis does not provide a strong empiricalsupport for Gordon Models.

5. The Nigerian market capitalizes theestimates of cash flows receivable byshareholders as dividend and hence thatshare market price is a representation ofmarket valuation of dividends.

6. The empirical result of positive andsignificant effect of dividend payments onshare market prices for the sample ofNigerian Companies indirectly cast somedoubt on the empirical validity of Modiglianiand Millers preposition of Dividendirrelevance in the context of Nigerianbusiness environment.

5.0 CONCLUDING REMARKSIn conclusion therefore, our empirical

evidence indicates that the hypotheses ofLintner/Gordon as well as that of signaling theoryof Bhattacharya performs remarkably well withrespect to the dividend policy of quoted companiesunder review. this confirms previous result as citedin Nyong(1990),Adesola(2004) that

Average earnings per share or averageearnings is still the most significant determinant ofaverage dividend payment,

We also confirm that current dividendpayment and earning per share are significant inexplaining the observed differential share marketprices of quoted firms in Nigeria. However, recentdata reveal that the magnitude of the impact ofearnings or earning per share is now greater thanthat of current dividend payment which used to bethe most significant as reported in previous studies(see Nyong 1990, Adesola 2004).Furthermore, we also confirm that growth prospectand firm size has no significant impact on thedividend behavior of corporate firms; and this is

inconsistent with the findings of Adelegan(2001).Based on the findings from the study, we

recommend as follows:(i) That government should assist in

improving the quality and availability ofsecondary data bank available forresearch in Nigeria

(ii) That the result of this study has at leastone policy implication. The fact thatdividend is still an important determinant ofshare market prices means thatcompanies may increase their sharemarket price by increase in the rate of

dividend paid. In order words, there issufficient empirical evidence to believe thata liberal dividend policy will lead to ahigher average market value of commonstocks than will penurious dividendpolicies. In effect we suggest thatcorporate management should follow agenerous dividend policy which willmaximize the long term benefits to itsstockholders.

(iii) Firms should try all their possible best inimproving their total earnings from eachtransaction year, since recent studyreveals that it now has greater impact thanany other factor in determining the marketshare value for Nigerian firms from year2001 till date.



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2006

150.0

0

1,3

00,4

22

5.1

6

1,8

52,3

52

3,3

86,4

59

65,910,0

00

1,9

59,0

43

12,7

08,2

45

3,3

86,4

59

1996

2.6

0

17,5

00

0.3

9

40,3

53

141,2

85

252,6

26

106,2

85

7,4

35

35,0

00

1997

2.5

0

17,5

00

0.3

2

32,2

76

146,6

30

268,2

89

94,1

30

7,4

35

35,0

00

1999

2.2

5

42,0

00

0.4

6

65,5

43

152,9

17

864,0

38

100,4

17

17,4

36

152,9

17

2000

6.4

0

42,0

00

0.7

5

111,7

70

207,1

43

1,003,8

81

36,7

90

17,4

36

189,7

07

2001

5.0

0

26,2

50

0.6

3

96,3

91

262,2

03

913,5

13

39,6

12

32,8

84

229,3

19

2002

3.0

5

-36,7

50

0.3

1

77,1

92

263,5

57

680,1

48

9,0

93

29,0

43

234,5

14

2003

3.0

0

-17,6

40

0.2

2

51,9

64

295,4

40

795,9

71

14,9

62

45,9

64

249,4

76

2004

2.2

2

-36,7

50

0.4

3

111,8

92

311,8

62

1,051,9

17

26,2

12

36,1

74

275,6

90

2005

3.0

4

-44,1

00

0.8

2

173,3

99

411,1

10

1,304,6

41

75,7

43

54,9

30

351,4

33

26.(PRINTING

AN

D

PUBLIS

HING)

LONGMANNIG

PLC

2006

6.9

3

-

1.1

6

283,5

61

619,3

47

1,743,8

74

203,7

51

64,1

63

555,1

84

1996

6.9

0

143,9

42

1.1

1

1,0

12,6

63

6,9

34,4

02

10,265,9

12

772,8

69

502,0

52

205,6

32

1997

4.2

0

148,0

55

1.1

7

706,3

62

6,9

79,0

35

9,436,8

82

1,1

95,0

63

64,5

90

246,7

58

1999

3.1

0

190,0

04

0.7

9

769,5

60

7,6

91,2

34

10,366,5

69

1,7

76,2

74

32,2

47

6,2

89,6

03

2000

2.9

0

-

0.8

1

629,6

40

7,2

23,3

07

9,204,6

44-

1,0

37,1

75

5,5

91,8

75

2001

4.0

0

265,1

08

1.0

7

903,0

06

12,2

41,5

32

14,483,8

92-

2,1

62,8

36

9,2

35,4

54

2002

3.2

6

295,1

49

1.2

6

1,5

76,6

83

12,8

17,3

44

21,989,3

08

5,0

61,6

60

2,2

07,3

74

10,0

03,9

55

2003

3.2

5

-

-

335,1

84

12,5

74,3

02

22,713,0

31

4,7

02,4

29

2,3

33,8

96

9,6

44,7

24

2004

1.8

7

84,3

28

0.1

6

340,4

75

12,4

87,4

78

21,838,7

90

4,7

75,0

58

2,2

02,1

62

9,7

13,3

63

2005

2.3

0

-

0.1

1

246,6

26

13,0

00,3

38

17,664,9

55

4,8

70,3

57

2,6

30,8

42

9,8

12,6

62

27.(TEX

TILE)

UNITEDNIG

PLC

2006

0.9

1

-

-0.8

9

-210,9

65

13,0

82,1

22

20,300,0

00

4,0

74,1

05

3,2

39,7

89

9,0

16,4

10

S

ource:NSEfactbook2001,2

005a

nd2007editions;BSSGi

ssuenum

ber3&9.

S

P=StockPrice

D

IV=DividendPayment

E

PS=EarningsPerShare

P

BT=ProfitbeforeTax

E

ARN

=Earnings

D

EBT=TotalDebt

W.A.ADESOLAANDA.E.OKWONG99


16/17

APPENDIX B: REGRESSION RESULTS

Table A: Standard Multiple Regression Result for equation 4.1

Regressor Coefficient Standard Error t-ratio

(Constant) -54083.4 99040.60 -0.546

EARN21 4.847E-02 0.007 0.725

DIV2000 1.296 0.090 14.349

Dependent Variable: DIV2001R_Square = 0.938 Adj. R_Square = 0.930 SER = 319920.0

F_statistics = 127.755 DW-Statistics = 1.504Source: Research results compiled from the secondary data.

Table B: Standard Multiple Regression Result for equation 4.2Regressor Coefficient Standard Error t-ratio

(Constant) 207648.5 299539.6 0.693

EARN25 4.872E-03 0.009 0.528

DIV2004 0.961 0.096 9.961

Dependent Variable: DIV2005R_Square = 0.886 Adj. R_Square = 0.870 SER = 821590.3F_statistics = 54.330 DW-Statistics = 2.642Source: Research results compiled from the secondary data.

Table C: Standard Multiple Regression Result for equation 4.3


(Constant) -26305.3 416414.1 -0.063

EARN26 -1.9E-02 0.010 -1.908

DIV2005 1.219 0.106 11.484

Dependent Variable: DIV2001R_Square = 0.950 Adj. R_Square = 0.939 SER = 900664.6F_statistics = 85.261 DW-Statistics = 1.244Source: Research results compiled from the secondary data.

Table D: Standard Multiple Regression Result for equation 4.4


(Constant) 0.634 2.096 0.302

DIV2001 4.189E-06 0.000 2.864

EPS2001 9.046 0.756 11.962

Dependent Variable: SP2001R_Square = 0.900 Adj. R_Square = 0.889 SER = 7.5262F_statistics = 89.544 DW-Statistics = 1.801Source: Research results compiled from the secondary data.

Table E: Standard Multiple Regression Result for equation 4.5


(Constant) -3.662 8.316 -0.440

DIV2006 8.22E-07 0.000 0.469

EPS2006 22.668 1.883 12.040

Dependent Variable: SP2006R_Square = 0.950 Adj. R_Square = 0.939 SER = 19.842F_statistics = 85.113 DW-Statistics = 1.255Source: research results compiled from the secondary data.



17/17

Table F: Standard Multiple Regression Result for equation 4.6


(Constant) -218471 1550071 -0.141

MEPS 276118.4 125195.4 2.205

MEARN -3.2E-02 0.021 -1.481

MGRT -5100.005 93981.40 -0.054

MSZ 30970.07 116734.5 0.265

Dependent Variable: MDIVR_Square = 0.186 Adj. R_Square = 0.038 SER = 832610.1

F_statistics = 1.255 DW-Statistics = 1.461Source: research results compiled from the secondary data.


an empirical study of dividend policy of quoted companies in nigeria

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