AN ASSESSMENT OF CORPORATIVE PERFORMANCE VARIABLES THAT DETERMINE DIVIDEND PAYOUT POLICIES OF MANUFACTURING INDUSTRIES IN NIGERIA

AN ASSESSMENT OF CORPORATIVE PERFORMANCE VARIABLES THAT DETERMINE DIVIDEND PAYOUT POLICIES OF MANUFACTURING INDUSTRIES IN NIGERIA

Background of the Study

The success of corporations is influenced by a variety of factors, one of which is dividend policy. Dividend policy is used to keep a manager's opportunism under check. Empirical studies reveal that companies in underdeveloped countries (for example, Nigeria) smooth their income and hence their dividends. Corporate dividend policies differ not just over time, but also between nations, particularly between developed, developing, and emerging capital markets. If a company's worth is determined by its dividend payments, dividend policy will have a direct impact on the firm's cost of capital (Captain, 2005).

The return that shareholders receive as a consequence of their investment in a company's shares is referred to as a dividend (Eriki and Okafor 2002). While dividend policy is concerned with the division of net profit after taxes between payments to shareholders (ordinary shareholders) and retention for reinvestment on behalf of shareholders (Kempner 1980), determining the appropriate level of dividend to be paid to shareholders, as well as whether or not to offer non-cash alternatives such as scrip dividends, is a difficult decision for both public and private limited companies.

The presence of certain share price reactions to dividend announcements, according to Davidson (1990), requires an examination of the evidence for both shareholder clienteles and putative interactions of businesses' dividend policies with critical activities such as internal investments. Dividend policy is part of a continuum of control allocations between managers and investors, and hence cross-sectional fluctuations in dividend policy are driven by an underlying cause, according to one component of the theory. The manager-investor control allocation is significant not because of agency or private information issues, but because of possibly differing ideas that might lead to a disagreement regarding the value of a project offered to the company. "Corporate Performance" is the fundamental factor. 'Corporate performance is at the heart of an organization's managerial role' (Samuel 1989). The creation of a modeling approach to aid in the diagnosis of past performance and thus give a framework for analyzing the effect of changes in operational parameters as a reference for future planning is the major focus of corporate performance analysis. The management form of wealth to be held is used to evaluate an organization's performance. There will be little or no conflict between management and shareholders if an organization's performance is good.

When reviewing Corporate Performance, the focus is on examining the organization's existing behavior in terms of efficiency and effectiveness. Objectives are created for each of these viewpoints to gauge overall business performance, and precise measures for accomplishing these goals are determined. To attain total efficiency and effectiveness, as well as long-term success, each of these views is vital and must be examined concurrently (Karl, 2009). Performance evaluation will become 'unbalanced' if any aspect is either over-emphasized or under-emphasized. The concept's goal is to construct a collection of financial and non-financial indicators that a firm may use to regulate its activities and balance multiple measurements in order to efficiently track performance.

'The theoretical assumptions underpinning the dividend policy and its influence on enterprises can be stated either in terms of dividend irrelevance or dividend relevance theory,' said Modigliani and Miller (1961). As a result, in a world without taxes or transaction costs, dividend policy has no impact on the cost of capital and the value of enterprises. This indicates that while investors may construct any income pattern by selling and purchasing shares, the expected return necessary to entice them to keep the firm's shares is unaffected by how dividend payments and fresh share issuance are packaged. The assets, investment possibilities, estimated future net cash flows, and cost of capital of a company are unaffected by dividend policy decisions.

Dividend payments and leverage policy, according to Agrawal and Jayaraman (2004), are substitute mechanisms for regulating the agency cost of free cash flow, which enhances performance. If a company's policy is to pay a dividend to shareholders at the end of each year, the level of activity in the company will rise in order to generate more revenue and have surplus retained earnings to satisfy the criteria set.

"Dividend policy has the effect of destabilizing dividends," Brockington (1987) observed, "since only a sustained increase or drop in profits will influence the average sufficiency to have any substantial effect on the size of the distribution." Because it is a cautious dividend policy, only half of all profits will be dispersed in the long term, resulting in a significant accumulation of retained earnings. This will undoubtedly support the dividend constancy, which can be maintained for a time even in the face of actual losses. It may also eliminate the need for the firm to seek funding from other sources. This policy's continuance has nothing to do with the availability of attractive investment possibilities. The concern is that initiatives will be launched that yield less than the real cost of capital in order to absorb money that would otherwise remain idle. According to Samuels and Wilkes (2005), shareholders are entitled to a dividend revenue stream. The present value of this series of dividend payments correlates to the share's value.

1.2 Statement Of The Problems

Developing economies have long acknowledged the importance of dividend payments as one of the factors of a firm's economic performance (Oyejide, 1976). Early dividend policy studies in Nigeria tried to emphasize Nigerian enterprises' payout policies during the time of indigenization. Uzoaga and Alozienwa (1974); Inanga and Soyode (1975); and Uzoaga and Alozienwa (1974). (1976). These studies don't use traditional dividend models to investigate their findings. Oyejide (1976), Izedonmi and Eriki (1996), and Adelegan (2000 and 2001) investigated the applicability of Lintner's model and the modified Lintner-Britain model, as adopted by Charitou and Vafeas (1998), to explain the dividend policy of Nigerian enterprises at various times. The majority of these studies, on the other hand, recognized the dynamic character of the Nigerian economy and the need for more study to corroborate the findings.

There have been no large research studies on the financial sector's dividend policy as a stimulus for economic development. This research establishes an empirical foundation for determining the development pattern and drivers of dividend policy in Nigerian Deposit Money Banks (DMBs). Based on the explanatory variables discovered in past research and legal concerns, this is anticipated to give relevant explanations on the dividend policy of Deposit Money Banks (DMBs) in Nigeria. The study also looks at the impact and link between dividend growth patterns and the stock valuation of the Deposit Money Bank.

Dividend choices in Nigeria are left to the discretion of the board of directors, albeit there are several limitations. Some of the restrictions are enforced by legal requirements, while others are imposed by financial considerations. The extent of effect of these restrictions and considerations has been assessed in order to give guidance to the Board of Directors in making prudent dividend decisions.

1.3 Objectives of the study

The aim of this researcher work is to examine corporate performance variables that determines dividend payout policies of companies in Nigerian. The specific objectives of this research work includes the following;

1.      To examine the relationship between earnings per share and dividend per share of Nigerian companies.

2.      To evaluate the relationship between firm size and dividend payout ratio of Nigerian companies.

1.      To examine the relationship between return on asset and dividend per share of Nigerian companies.

1.4 Research Hypotheses

The following hypothetical statements will be validated in the course of this study

H01: There is no relationship between earnings per share and dividend per share of Nigerian companies.

H02: There is no relationship between return on asset and dividend per share of Nigerian companies.

H03: There is no relationship between firm size and dividend per share of Nigerian companies.

1.5 Significance Of The Study

The under listed stakeholders will benefit from this study.

1. Investors should value the result of this study when making decisions on stock investment and portfolio management. As it will enhance investors’ objectives concerning dividend and performance.

2. This enables management to understand what must be done in order to act in the best interest of shareholders in choosing dividend policies that will benefit and maximize their wealth. Likewise, financial managers can use the results of this study to develop a dividend policy that will determine the proportion of profits to retain in business and the proportion to distribute as dividends to shareholders in an attempt to maximize shareholders’ wealth.

3. Shareholders have different investment objectives and the study helps them understand whether to expect immediate or long-term returns from their investment portfolios if they invested in any of the companies under study. The Stock brokers and Stock agents whose investment advisory services are of due importance to the investors will benefit from the study.

4. This study will help the companies that may want to adapt their dividend policy to the recommendations generated based on the relationship that exists between dividend policy and firm performance. The companies can use the findings as a platform to base their dividend policies in meeting both corporate and shareholder interests.

5. Scholars, students and researchers will benefit from this work because in terms of academic contribution, this study adds more updated empirical evidence to existing financial literature in Nigeria on (dividend policy and firm performance).

1.6 Scope Of The Study

This study evaluates corporative performance variable that determines dividends payout policies of Nigeria Breweries. Hence, the study is narrowed to earnings per share, return on asset and dividend per share of Nigerian companies, as well as firm size and dividend per share of Nigerian companies. The study covers the period of six years which is from 2009-2014.

1.7 Limitations Of The Study

This study is limited to data which are company specific and therefore can be obtained only from annual reports and financial statements. The study is restricted to companies quoted in Nigerian stock exchange (NSE) that meet the requirements for the research work. The results of the study cannot be generalized to other companies that are not studied or those that are listed in other security markets in the world. Data representing the period of six(6) years were used for the study.

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