Article2015

DIVIDEND PAY-OUT POLICY AND FIRM FINANCIAL PERFORMANCE: EVIDENCE FROM NIGERIAN LISTED NON-FINANCIAL FIRMS

Sunday Kajola · Ademola Adeniran Adewumi · O. O. OWORU

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Determination of the correct mix of dividend and retained earnings and its effect on profitability has been a subject of controversy in financial management literature. This paper seeks to contribute to the on-going debate by examining the relationship between dividend pay-out policy and financial performance of 25 non-financial firms listed on the Nigerian Stock Exchange between 2004-2013. Panel data methodology was employed and pooled Ordinary Least Squares (OLS) was used to estimate the coefficients of explanatory and control variables. The Return on Assets (ROA) served as surrogate for the dependent variable, profitability, while Dividend Pay-out ratio proxied for dividend policy and was the only explanatory variable. Control variables include firm size, asset tangibility and leverage. Regression result reveals a positive and significant relationship between dividend pay-out policy (DPO) and firm performance (ROA). It is recommended that companies should endeavour to put in place robust dividend pay-out policy that would encourage investment in projects that give positive Net Present Value. The finding of this study is consistent with some prior empirical studies and provides evidence in support of both Signaling and Bird - in- hand hypotheses of dividend policy theory.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1995The Theory of the Growth of the Firm 1961Dividend Policy, Growth, and the Valuation of Shares 1985Dividend Policy under Asymmetric Information 1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES 1979Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy 1993Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies 1990Do Taxes Affect Corporate Financing Decisions?

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