An analysis of the relationship between dividend payment and corporate performance of Nigerian banks

Abstract

This paper analyzes the extent of relationships between dividend payment and corporate performance in the Nigerian banking industry. This is sequel to the fact that the determinants of the dividend policy have received little attention in developing countries such as Nigeria. The study uses a panel data set of banks listed on the Nigeria stock exchange between the year 1990 and 2010. The study developed five research hypotheses, which were applied to examine the extent and the level of significance of the relationship between the amount of dividend payment and corporate performance using regression models. The models considered the impact of free cash flows, current profitability, financial leverage, business risk and tax paid on dividend payment ratio. The research indicates that there is no significant relationship between dividend payout of banks in Nigeria and the explanatory variables. This result taken as a whole indicates that banks pay dividend in Nigeria with the intention of reducing the agency conflict and maintaining firms’ reputation. Furthermore, the Nigerian banks apportion more earning to the retention to boost growth of the banks when experiencing surplus earning. It was recommended that consistent policies and stable economic environment should be maintained to encourage surplus earning and high dividend payment ratios to shareholders in Nigeria.

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