Dividend Policy and Wealth Creation by Firms Quoted on the Nigeria Stock Market: A Study of NSE-30 Index

Abstract

Dividend policy has remained one of the most important issues in Corporate Finance. This study examined the relationship between the proxy of dividend policy, dividend payout ratio and the proxies of firms’ wealth creation like capital structure, profits and investment. Panel Least Squares (PLS) regression model was used to investigate the effect of dividend policy on wealth creation by firms in Nigeria. Data were extracted from the financial statements of 30 firms listed on the Nigerian Stock Exchange Index (NSE-30 Index) and the NSE Fact Books for the period 2004 to 2010. The results showed that, in isolation, while capital structure had significant negative effect on dividend payout (t-stat p-value = 0.0089 < 0.05), profitability had significant positive effect (t-stat p-value = 0.0000 < 0.05); but fixed asset-dominated investment had insignificant negative effect as evidenced by t-stat p-value = 0.5969 > 0.05level of significance. On the aggregate, the wealth creation indices jointly significantly determined dividend policy of the firms as evidenced by the p-value of the F-statistic (p-value = 0.0000 < 0.05). This indicated that though wealth creation significantly determined dividend policy of the firms, payouts were explained more by factors other than these components of firms’ wealth creation in Nigeria.