Dividend Payment Behaviour and its Determinants: The Nigerian Evidence

Abstract

This paper offers new evidence on the existence of disappearing dividend phenomenon in the Nigerian stock market and as to how clientele, catering and life-cycle theories of dividend affect firms' dividend paying behaviour. We did not find conclusive evidence to suggest that dividend payments had become second order of importance in firms' payout policies during 2003–2012 because we only observed a downward trend in dividend payments during 2010–2012. Logistic regression of a probability to pay or not to pay dividend and a panel regression of the size of dividend payment show that clientele theory stands out as compared to catering and life-cycle theories. Firms in our sample shape their dividend policies in line with the preference of foreign investors who have less preference for dividend over capital gain due to dividend taxes imposed on these shareholders. This underlines the importance of foreign investors on firms' corporate decisions given the fact they owned more than half of the total shares traded on the Nigerian Stock Exchange. Other determinants that affect the propensity to pay are profitability, investment opportunities, leverage, cash flow, crisis, stock market performance, past dividend and interest rate with signs that are consistent with the prediction of traditional dividend theories.

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