THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICRO FINANCE INSTITUTION

THE EFFECT OF DIVIDEND POLICY ON THE GROWTH OF MICRO FINANCE INSTITUTION

Abstract

Despite years of theoretical and empirical research, dividend policy remains a source of controversy especially the aspect of the linkage between dividend policy and stock price. Its impact on shareholders wealth is still unresolved. This is in view of the fact that companies belong normally to different people or groups of people with individual views on the business and how to divide the firm’s profit which inturn affects how each of these diverse investors place value on the firm. Hence, this study investigated the relationship between earning, dividend and the value of a company. Dividend relevance and irrelevance theories were introduced in the study to capture the divergent views on the impact of dividend policy on stock price. The study adopted time series research design and secondary data drawn from the fact book of the Nigerian stock exchange and annual report of ten (10) selected Microfinance Institution was used for the study. The sample selection is based on a number of criteria employed by previous studies on dividend policy. Such criteria includes firms with the financial and market information available in the summarized reports necessary to estimate the various pooled panel data models amongst others criteria.  A linear regression model was developed and statistically tested using panel least square method.  The result of the empirical study carried out revealed that the earning streams of companies in Nigeria have a greater impact than their dividend payouts in shaping the price of their shares in the market. The study therefore recommends that corporate managers should strive to maintain a steady increase in earnings by maximizing return on investment. The study further recommends that firms should maintain a stable dividend payout in order to increase internal finance available to pursue further profitable investments that will help increase earnings.

 

 

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