THE EFFECT OF DIVIDEND POLICY ON FIRMS’ PERFORMANCE OF NIGERIAN QUOTED COMPANIES
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ABSTRACT
Dividend policy is used by listed companies to choose an amount out of its profit to retain and/or pay as dividend to their shareholders. The decision on Dividend Policy is one of the very important decisions to make and it is dependent on some factors such as liquidity, investment opportunities, etc. Companies’ financial performance is a very good indicator of their sustainability and that is where the interest of investors lies. The purpose of this study was to determine the effect of dividend policy on the performance of Nigerian Quoted companies. One Hundred and Sixty-Nine (169) firms trading on the Nigerian Stock Exchange as at 31st December, 2020 formed the study population while a sample of 56 companies was used. In arriving at the sample size, the Krejere and Moryan (1970) formula was adopted after which a number of companies whose financial accounts were not up to 20 years were removed. The financial statements of the companies from 1999 to 2018 were used. The dividend policy attributes used in this study were: Form of Dividend Payments (FDP), Timing of Dividend Payments (TDP), Earnings per Share (EPS), Price Earnings Ratio (PER) and Dividend Yield (DY) (known as determining factors). The dependent variable of the company (firm performance) was assessed by Return on Assets (ROA), Return on Equity (ROE) and Tobin’s Q for a robustness check. Descriptive statistics, correlation matrix and panel regression analyses were conducted using the econometric analysis software E-views 9. The result revealed that FDP showed a positive but insignificant relationship with Return on Assets (3.13, p=0.1032); TDP showed a negative but significant relationship with ROA (- 4.80 p=0.025); while EPS, PER and DY showed a positive and significant relationship with ROA (0.03, p= 0.00; 0.001, p=0.00; and 3.24, p=0.03). With Return on Equity, FDP, EPS and PER showed a positive and significant relationship with ROE (15.585, p=0.01; 0.044, p=0.00 and 0.004, p=0.00); TDP showed a negative but significant relationship with ROE (-18.04, p=0.003), while DY showed negative and insignificant relationship with ROE (-1.70, p=0.635). With Tobin’s Q, EPS and PER showed a positive and significant relationship with Tobin’s Q (0.001639, p=0.002; 0.000307, p=0.007), TDP and DY showed a negative and insignificant relationship with Tobin’s Q (-0.90, p=0.41; -3.60, p=0.18) while FDP showed a positive but insignificant relationship with Tobin’s Q (0.706, p=0.49). The study concluded that FDP had positive but insignificant relationship with firm performance; TDP had negative but significant relationship with firm performance, EPS and PER had positive and significant relationship with firm performance; while DY had negative and insignificant relationship with firm performance. The study recommended that Earnings per Share should be increased steadily to sustain growth and investment in the organization because an increase in earnings per share is directly proportional to the robust performance of firms in Nigeria. The outcome of the study contributes to the existing knowledge on dividend policy and firm performance since it is evident that the form of the dividend payment is directly proportional to the growth of firms in Nigeria.
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