Effect of Dividend Policy on the Share Price of Selected Quoted Companies In Nigeria
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Date
2016-01
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Department of Accounting, College of Management Sciences, Afe Babalola University, Ado Ekiti, Nigeria
Abstract
Dividend policy of companies determines what proportion of earnings is distributed by way of dividend to shareholders and what proportion is ploughed back for reinvestment purposes. However, companies today belong to different people with individual views on how to divide the company’s earnings between payouts and retention. This makes it difficult for corporate managers to make the most appropriate decision about the payout policy to be followed as it no doubts affects how each of diverse investors place value on the company. Hence, this study investigated the effect of dividend policy on the share price of selected quoted companies in Nigeria. In addition, the study evaluated what influences share prices the most between dividend and earnings and conducted an investigation into the sectoral effect of dividend policy on share price. Dividend signaling theory which is the extension of the dividend relevance theory was adopted for the study. The study adopted an analytical research design and 56 quoted companies were purposively sampled for the purpose of the study. Companies selected are companies with dividend record throughout the study period. Secondary data drawn majorly from the fact book of the Nigerian stock exchange for the period covering 2006-2012 was used for the study. Two multiple regression models were statistically tested using panel least square method. The result of the empirical study carried out showed that dividend payout and dividend yield which are two important measures of dividend policy exert a significant negative influence on the market price of shares of Nigerian quoted companies. This was significant at 5% level. In addition, the study found that dividend paid to shareholders in Nigerian has a greater impact in the determination of the market price of shares than the earning streams of the companies and that the impact of dividend policy on share price differs from one sector to the other. The study therefore concluded that dividend policies matters in the shaping of the share price of Nigerian quoted companies and recommended amongst other things that managers of Nigerian quoted companies should ensure their dividend payouts ratios are reduced in the face of profitable investment opportunities so as to increase the company’s share price
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Keywords
Dividend policy, share price, Earnings, Quoted companies, Nigeria
Citation
Fagbemi, T. O., Salman, R. T, & Lawal, A. A. (2016). Effect of Dividend Policy on the Share price of Selected Quoted Nigerian Companies. International Journal of Accounting, Finance and Management, 1(1), 117-143. Publication of Department of Accounting, Finance & Management, Afebabalola University, Ado-Ekiti, Nigeria.