DIVIDEND POLICY AND ORGANIZATIONAL PERFORMANCE OF QUOTED

MANUFACTURING FIRMS IN NIGERIA

ADEDOKUN, ADEOLA PRECIOUS

H/AC/22/6657

DEPARTMENT OF ACCOUNTANCY,

SCHOOL OF MANAGEMENT STUDIES,

THE FEDERAL POLYTECHNIC ILARO, OGUN STATE.

NOVEMBER, 2024

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 DIVIDEND POLICY AND ORGANIZATIONAL PERFORMANCE OF QUOTED

MANUFACTURING FIRMS IN NIGERIA

BY

ADEDOKUN, ADEOLA PRECIOUS

H/AC/22/6657

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF HIGHER NATIONAL DIPLOMA IN ACCOUNTANCY, SCHOOL OF
MANAGEMENT STUDIES, THE FEDERAL POLYTECHNIC ILARO, OGUN STATE.

NOVEMBER, 2024.

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 CERTIFICATION

This is to certify that this project was carried out by Adedokun, Adeola Precious H/AC/22/6657 and
respectively under the supervision of Barrister E. A. Ademola (FCA) in the Department of
Accountancy.

_________________________
Barrister E. A. Ademola (FCA)
Supervisor’s Signature & Date

_____________________________
Barrister E. A. Ademola (FCA)
Head of Department’s Signature & Date

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 DEDICATION

This research work is dedicated to the Almighty God who has brought me this far in the journey of my

life, for his unlimited mercies, grace, favour and guidance over me throughout my course of study and

my stay at Ilaro.

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 ACKNOWLEDGEMENTS

The completion of this study would have been impossible without the material and moral support from
various people. It is my obligation therefore to extend my gratitude to them. First of all, I thank
Almighty God for giving me good health, and guiding me through the entire courses.
I am greatly indebted to my supervisor Barrister E. A. Ademola (FCA) for her effective supervision,
dedication, availability and professional advice, may God continue to bless her. I extend my gratitude
to the Head of Department Barrister E. A. Ademola (FCA) and other lecturers in the Department of
Accountancy, Dr. Mohammed, S. R. (FCA), Dr.Agbeyangi, B. A. (FCA), Barrister Ademola, E. A.
(ACA), Mr Oderinde, A. A., Mr Olawore, O. O., Mr. Busari, I. A., Mr. Balogun, S. B., Mr Fatogun, O.
I. (ACA), Mr. Fatoki, O. J Mrs Oduwole, F.R., Mrs. Ajao, C.C. (ACA), Mrs Akintoye, R. O., Mr
Abubakar, I., Miss. Edeh, B. (ACA), Mrs Ajimati, O. B. and Mr Olaoye S. for their selfless efforts and
their individual contribution during the course of study.
My profound gratitude to my parent (Mr. & Mrs. Adedokun) whose immense financial supports,
advice and prayers, brought me to the level I am today which cannot be quantified monetarily. My
unreserved appreciation goes to my siblings Adedokun Temilade and Adedokun Oluwatobiloba and
course mates for their encouragement, advice, financial contribution and prayers which has really
helped me greatly in seeing the success of my program. Thanks and God bless.

ABSTRACT

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This work examines the dividend policy and Organizational performance of quoted manufacturing
companies in Nigeria. An Ex-postfacto (after-the-fact) research design was adopted. This design
suggests that a research is conducted after the event has taken place and required data already in
existence. This study utilized secondary data. Data was obtained from the financial statements
including statement of comprehensive income and statement of financial position from the individual
company websites from 2014 to 2023. Data on dividend per share, Earnings per share, dividend
payout and book value per share were used to calculate from the statement of account. It is
recommended that Companies should improve on the amount of dividend per share paid to
shareholders as this can lead to improved their performance and the ratio of payment to dividend
should also be improved as this can bring about better performance standard. The decision on
earnings of shareholders should also be considered as this can make managers to employ the possible
ways of generating high earnings for the company. These data were subject to regression analysis
using STATA Version 13. The result of findings with the aid of regression analysis revealed that
dividend per share has a positive and significant effect on financial performance of companies in the
area covered by the study. While the second hypothesis showed that dividend payout ratio has a
coefficient of 11.98152 and a p-value of 0.000 test criteria the study reject the null hypothesis. The
regression result reveal that dividend payout ratio has a positive and sig

Keywords: Dividend, Firms, Manufacturing, Organizational, Performance

TABLE OF CONTENTS

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Title page i

Certification ii

Dedication iii

Acknowledgements iv

Abstract v

Table of Contents vi

List of Table vii

CHAPTER ONE

INTRODUCTION 1

1.1 Background Information to the Study 1

1.2 Statement of the Problem 6

1.3 Objectives of the Study 8

1.4 Research Questions 8

1.5 Research Hypotheses 9

1.6 Scope of the Study 9

1.7 Significance of the Study 9

1.8 Limitations of the Study 10

1.9 Definition of Terms 10

1.10 Case/Historical Background of Selected Manufacturing firm in Nigeria 11

CHAPTER TWO

REVIEW OF LITERATURE 16

2.1 Conceptual Framework 16

2.1.1 Concept of Dividend Policy 16

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2.1.2 Concept of Dividend Per Share 21

2.1.3 Concept of Dividend Payout Ratio 25

2.1.4 Relationship between Dividend and Earning Per Share 26

2.1.5 Concept of Financial Performance 28

2.2 Empirical Review 29

2.2.1 Dividend Per Share and Financial Performance 29

2.2.2 Dividend Payout and Financial Performance 33

2.3 Theoretical Framework 36

2.3.1 MM Irrelevance Theory 36

2.3.2 Signalling Theory of Dividends 37

2.3.3 Bird in the Hand Theory 38

CHAPTER THREE

RESEARCH METHODOLOGY 40

3.1 Research Design 40

3.2 Population, Sample and Sampling Techniques 40

3.3 Methods of Data Collection 41

3.3.1 Technique for Data Analysis and Model Specification 42

3.4 Justification of Methods 42

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS 43

4.1.1 Descriptive Statistics 43

4.1.2 Correlation Matrix 44

4.1.3 Post Diagnostic Test 44

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4.1.4 Regression Result 46

4.2 Test of Hypotheses 47

4.2.1 Hypothesis One 47

4.2.2 Hypothesis Two 48

4.3 Discussion of Findings 48

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS 49

5.1 Summary 50

5.2 Conclusion 50

5.3 Recommendations 50

References 52

APPENDICES

LIST OF TABLE

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Table 4.1: Descriptive Statistics on ROA, EPS, BVPS, DPS and DPR 43

Table 4.2: Correlation Matrix 44

Test Table 4.3: Variance Inflation Factor 45

Table 4.4: Coefficients 46

Table 4.5: Random-effects GLS regression 47

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 CHAPTER ONE

INTRODUCTION

1.1 Background Information to the Study

In the world of corporate finance, a company's directors decide on the size and schedule of any cash

payments given to the shareholders. This decision is known as the dividend policy. Given that it can

affect a company's capital structure, stock price, and overall performance, dividend policy is a crucial

component of modern corporate structures. The company must strike a balance between shareholder

distribution and business growth. One of the many elements that influence a corporate organization's

performance is its dividend policy. Dividend policy functions as a check on managerial opportunism.

A dividend policy is a crucial component of corporate financial policy because it can impact a

company's cost and availability of capital.

The onus of making the best investment choices for the company and guaranteeing the maximization

of shareholder wealth falls on managers. This is possible when businesses make enough money and

carefully consider how much to give to shareholders or reinvest in the business. Dividends are the

*funds that are given to shareholders.

According to Mukora, (2018) dividends are distribution of cash to shareholders in proportion to their

equity holding. He further explained that no company is compelled to declare a dividend and those that

do may vary the amount. On the other hand, Zayol, Mya and Muolozie, (2017) defined dividend

policy as firm’s dividend payout policy that mangers follow in deciding the pattern and size of cash

distribution to shareholders in the form of dividend. They went on to say that management makes the

choice regarding how much income is distributed as dividends to shareholders. Dividend policy

choices include whether to distribute profits as dividends or keep them in the form of cash or shares to

be used for future business needs. According to Oliver and Ugah (2019), one of the most significant

business decisions is whether or not to pay a dividend because it is a basic expectation for

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shareholders. A company’s ability to consistently pay out increased levels of dividend over time,

conveys information about the management’s assessment of the firm’s performance as well as its

future prospects.

Every profit-making organization's operational phenomenon is profitability, which is made up of

operating strategies and short- and long-term management planning. It is a qualitative indicator of the

management's input-output relationship and effectiveness in maximizing investor returns on

investment, assets, capital employed, and earnings per share. Both macro and micro assessments of a

company's profitability are possible (Aburime, 2018). Profit for businesses operates at a macro level

and is heavily influenced by management, asset composition, capital structure, ownership structure,

and dividend policy (Farsioet, 2021).

In the corporate firms, the performance of the dividend function requires a critical examination of the

twin effect on the corporate profitability and the value of the firm. Optimal dividend policy requires

that management allocate payout ratio that will guarantee the maximization of shareholders wealth

through the vehicle of increase market value of the firm and its shares (Ezirim, 2020). Companies with

high dividend payout occasioned by high earnings records are priced high on the Nigerian capital

market. Dividend policy is the function of dividend payout ratio, ownership structure, capital market

operations, inflation and the legal framework (Lie, 2005). It can be residual policy, stable or

predictable policy, low regular plus extra policy or constant payout policy (Nissim, 2021).

The agency theory did point out that management may use shareholder funds for investments that

serve their own interests rather than maximizing shareholder wealth. With the goal of creating

profitable businesses that will increase return on investment and have an impact on the economy,

Nigerian business has undergone a number of structural, institutional, and policy reforms over the

years. One such reform was the deregulation of the economy in the final quarter of 1986. Additionally,

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there are the difficulties posed by macroeconomic factors like shocks to the monetary policy, which

can have a negative impact on corporate firm performance and dividend policy. For example, the

1980s, 1990s, and 2000s macroeconomic and monetary policy shocks had a negative impact on

corporate organizations' performance, which also had an impact on dividend policy (Adesola, 2019).

The relationship between dividend policy and performance of firms has long been one of the most

controversial issues among scholars in corporate finance. Despite numerous empirical researches, the

controversy between dividend policy and performance of the firm remain unresolved (Azhagaiah,

2018) (Eriki and Okafor, 2020) (Kioko, 2016) (Luke, 2011). Some of the findings deepened the

controversy and cannot be used in policy making. To Gordon (2019) dividend policy is relevant and

has effect on the firm value while Miller and Modiglani (2019) posited that dividend policy is

irrelevant with the assumption of perfect market. The question is “Can market be that perfect that will

make dividend policy irrelevant?” most of the empirical findings have been in favor of the dividend

policy relevance hypotheses as postulated by Gordon.

However, most of these findings and the underlying theories are based on the operational efficiency of

the capital market and the business environment of the developed country as opposed to the capital

market operations and the business environment of emerging countries like Nigeria which is

characterized by lack of transparency and poor corporate governance. This makes it difficult for

researchers to determine the relationship between dividend policy and the profitability of quoted firms.

The management board of Nigerian firms mortgage shareholders interest for personal interest. For

instance the case of Economic and Financial Crime Commission (EFCC) Vs the Managing Director of

the defected Oceanic bank where the plaintiff pleaded guilty of N191 Billion Naira, an amount greater

than five times capital base of the bank. The dearth of such research makes this study imperative. The

macroeconomic reforms over the years have the objective of repositioning the Nigerian business

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environment to attract investors and maximize shareholders wealth. It is therefore necessary to

examine the effect of dividend policy on the profitability of the quoted firms through the dividend

policy channel.

Once more, attempts have been made to determine a meaningful and acceptable relationship between

the profitability of quoted firms and dividend policy; however, the results have been ambiguous and

have made policy application challenging (Adelegan, 2017, Black, 2019, Hakansson, 2016, Petit,

2017). Some people reported good things, but some people reported bad things (Rozeff, 2019,

Harkavy, 2017). Without taking profitability into account, the majority of studies conducted in Nigeria

(Amihud, 2020, Adesola, 2020) have concentrated on the relationship between the firm's share price

and dividend policy. As a result, the goal of this paper is to analyze the dividend policy and

profitability results of a few listed Nigerian companies.

Dividend policy is becoming a central discourse in the management of firms in developed and

emerging countries of the world (Anandasayanan & Velnampy 2016; Abdul, & Muhibudeen, 2021;

Sindhu, 2017; Uwalomwa, Jimoh, & Anijesushola, 2018; Zameer, Rasool, Igbal, &Arshad, 2022;

Priya, & Nimalathasan, 2018; Rehman, & Takumi, 2022).This policy remains one of the most

important policies upon which the framework of the management of a company is hinged, as this to a

large extent serve as a basis for sustaining the finance mix of an organization(Marfo Yiadom & Agyei,

2011; Zameer, Rasool, Igbal & Arshad, 2021). Dividend payment decision comes into management

decision trail after investment decisions and other finance decisions taken by the management had

yielded considerable return. At this point management becomes concern whether to distribute

all/proportion of the profit to its shareholders or ploughed the profit back into the business in form of

investment. Without controversy management of organizations takes decisions regarding dividend

payment having in mind the need to maximize the wealth of shareholders (Husam-Aldin, Michael,

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&Rekha, 2018). Firms often declare dividend payout to prove among other things that the company is

making profit as expected, and that maximizing shareholders wealth is of importance to the

management, especially after making consideration for available investment opportunities that can

generate higher return and increase the future earnings of the stakeholders (Nnadi & Akpomi, 2018;

Mizuno, 2017).

There is a growing concern about the true nature of the relationship between dividend policy and

performance of firms, with divergence in views among scholars around the world as touching the

impact of dividend payment on firm’s performance. Some scholars(Anandasayanan, & Velnampy,

2017; Abdul, & Muhibudeen, 2018;Maditinos, Sevic, Theriou, &Tsinani 2019;Amidu 2017; Dong,

Robinson & Veld 2005;Myers & Frank 2004; Baker, Powell &Veit 2022; Travlos, Trigeorgis,

&Vafeas 2021)are of the view that dividend policy has significant impact on firm’s performance,

while some(Adesola & Okwong 2019; Denis & Osobov 2018; Uddin & Chowdhury 2022; Adefila,

Oladipo & Adeoti 2019; Chen, Firth, & Gao 2018)argued that dividend policy has no influence on

firm’s performance. It thus stand that there is no consensus on the impact of dividend policy on firms

performance globally.

In recent years investigations geared toward delineating the puzzle of the relationship between

dividend policy and firm’s performance in Nigeriareported conflicting discoveries. For example(Abdul

and Muhibudeen, 2021; Dada, Malomo, &Ojediran, 2018; Abiola, 2018; Ogheneochuko,

2017;Adediran&Alade 2019; Uwalomwa, Jimoh and Anijesushola2012) revealed that dividend policy

influence firm’s performance, while on the other hand (Eyigege, 2019;Ifuero&Iyobosa,

2016;Adesola&Okwong 2019; Adefila, Oladipo & Adeoti 2017) submitted that dividend policy has no

significant influence on performance of firms. Gap identified in literature include the fact that most of

the studies conducted in recent years either combined firms from different sectors (Ozuomba,

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Anichebe, Okoye, 2016;Ogheneochuko, 2018;Uwalomwa, Jimoh and Anijesushola 2019; Uwuigbe,

Jafaru, &Ajayi, (2016) Adesola & Okwong 2019;Adefila, Oladipo & Adeoti 2018) or focus on firms

from sectors other than the manufacturing sector (Dada, Malomo, & Ojediran, 2015;Abdul and

Muhibudeen, 2016; Abiola, 2014;Adediran&Alade 2019), Few studies thatfocused on manufacturing

sector (Eyigege, 2019;Ifuero&Iyobosa,2016; Sa’adu, & Abdu 2016; Enekwe,, Nweze & Agu, (2015)

do not make use of panel based estimation which is believed to give more informative result with

lesscollinearity, more degree of freedom and efficiency (Gujarati and Porter, 2019).More so the

position of Eyigege (2015) that Nigerian manufacturing companies had hither-to recorded unstable

trend in the payment of dividend to their shareholder, supporting the observation of Arumona (2018)

that Nigerian manufacturing sector had not been consistent in dividend distribution over time, brought

to mind the possibility of the inconsistencies in dividend payment to disrupt the true nature of the

impact of dividend policy on firms performance of firms observed by previous studies. Hence this

study investigated the impact of dividend policy on performance of selected manufacturing firms with

consistent dividend distribution over a specified period of five years, using panel based techniques of

estimations. Specifically the study set out to:

i. Analyze the impact of dividend per share, on firm's performance measured in terms of return

on capital employed.

ii. Ascertain the influence of dividend payout ratio on firm's performance measured in terms of

return on capital employed.

1.2 Statement of the Problem

For a considerable amount of time, researchers have been debating the nature of the relationship

between a company's dividend policy and financial performance (Dada, Malomo & Ojediran, 2019). It

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has been suggested that it makes more sense for businesses with higher returns to reward their

shareholders with larger cash dividends in order to reflect their improved financial performance.

Studies on financial performance and dividend policy have mostly focused on companies listed on

stock exchanges in developed nations like the United States of America (USA), Great Britain, and

Japan; companies in emerging economies have largely been overlooked (Maniagi, 2019). The

empirical literature worldwide revealed conflicting results about the relationship between dividend

policy and financial performance. According to a study done in Kenya by Odawo (2015), the dividend

policy of companies listed on the Nairobi Securities Exchange is determined by the company's size,

profitability, debt-to-equity ratio, and liquidity. Bulla (2018) sought to investigate the causes of

variations in dividend policy of public firms listed at the Nairobi securities exchange. The factors

under consideration in this study were;

current firm returns, dividend yield and the size of the firm. It was established that the three factors

influenced dividend payout ratio in a significant manner.

Numerous empirical studies on the relationship between dividend policy and financial performance

have been conducted in Nigeria (Uwuigbe, 2016; Kajola, Adewumi and Owuru, 2019; Monoghe and

Ibrahim, 2019; Harley and Ayodele, 2017), with varying degrees of success. Some studies have

completely disagreed with the claim that dividend policy is one of the key factors influencing a firm's

performance, even though the majority of them have agreed with it. Once more, the majority of these

studies explore this phenomenon on a subset of Nigerian quoted companies without conducting a

sector-specific analysis. The factors under consideration in this study were; dividend-per share,

earnings per share, dividend payout ratio, book value per share as well leverage and firm size as

control variables. This study will use consumer goods sector as there is evidence of paucity of sectorial

research in literature regarding this topic. This study uses return on assets as a stand-in for financial

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performance to empirically investigate the impact of dividend policy on the financial performance of

quoted consumer goods companies in Nigeria. The study is based on the problems identified and the

gap in the literature.

1.3 Objectives of the Study

The main objective of this study was to find out dividend policy and organizational performance of

quoted manufacturing firms. Derived from the main objective are the following specific objectives:

i. to examine the relationship between dividend policy and organizational performance.

ii. to investigate the impact of dividend payout on the financial performance of quoted

manufacturing firms in Nigeria.

iii. to determine the effect of dividend yield on the market value of quoted manufacturing firms in

Nigeria.

iv. investigate the effect of book value per share on return on asset of quoted manufacturing

companies in Nigeria.

1.4 Research Questions

The following questions were used to achieve the above objectives:

i. What is the impact of dividend policy ratio on shareholders' wealth of quoted manufacturing

firms in Nigeria?

ii. What is the relationship between dividend payout and financial performance of quoted

manufacturing firms in Nigeria?

iii. How does dividend yield affect the market value of quoted manufacturing firms in Nigeria?

iv. How does the book value per share affect the return on assets of Nigerian manufacturing

enterprises that are quoted?

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1.5 Research Hypotheses

Based on the research questions stated above, the following research hypotheses are formulated:

H01: There is no significant relationship between dividend payout and financial performance of quoted

manufacturing firms in Nigeria.

H02: There is no significant positive relationship between dividend payout ratio and earnings per share

(EPS) of quoted manufacturing companies in Nigeria.

H03: There is no significant difference in the dividend policy of high-performing and low-performing

H04: There is no significant effect on the market value of quoted manufacturing firms in Nigeria.

quoted manufacturing firms in Nigeria.

1.6 Scope of the Study

This scope provides a clear outline for investigating the relationship between dividend policy and

organizational performance of quoted manufacturing companies (Honeywell Flour Mills Plc, Nestle

Nigeria Plc, Lafarge Africa Plc and Dangote Flour Plc, Ibese etc) in Nigeria.

1.7 Significance of the Study

This research looks at how dividend policies affect the financial performance of publicly traded

consumer goods companies in Nigeria. The results of this study can be used by corporate managers,

particularly those of listed companies, to help them decide how, when, and to whom to pay dividends.

Investors will find this study invaluable in understanding dividend payment announcements and

modifications. As a result, they would be able to decide on investment performance with greater

knowledge. Through the firm's value as determined by the dividend policy, it will assist them in

identifying investments that are worthy. This study was helpful in adding to the ongoing discussion

regarding the connection between dividend payout and company financial performance. Given that

capital structure, asset pricing, and capital budgeting are all based on dividend policy, the study does a

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great job of illuminating the significance of dividend policy for I Academicians. As a result, it offers a

more thorough grasp of corporate dividend policy, assisting academics in creating increasingly

complex financial models. The results of this study will also be helpful to academics in developing

new directions for their research or expanding existing ones.

Managers will benefit from this research by understanding how their choices regarding dividend

policies impact the overall performance of the company. This will provide them the ability to make

choices that won't cause reactions from stakeholders that could negatively affect the company's

performance. utilizing the study's discovery. In order to optimize performance, company agents will

also be able to make well-informed decisions.

The study will assist investors in making rationale choice in investment most especially in

organizations with higher return and the variables that prompt higher organizational performance.

1.8 Limitations of the Study

Due to the delicate and critical nature of the subject, every research study has limitations. One of these

limitations is time limits, which may restrict the scope and depth of data that can be gathered and

examined. One of nature of this study is that it demands much cost than what researcher could afford,

the scope of the study was almost too narrowed to enable the research have a sample that could be

effectively studied, bearing in mind cost consideration and financial resources available to one as a

student. The researcher is also time space at disposal to carry out the research is seriously affected by

intermittent closure of school.

1.9 Definition of Terms

Dividend: A dividend is a payment made by a company to its shareholders, usually as a distribution of

profits. When a company makes a profit, it can decide to retain those profits within the business or

distribute some of those profits to its shareholders in the form of dividends.

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Firms: A firm is a business organization that produces goods or services with the aim of making a

profit. It is a type of business entity that is often referred to as a company, corporation, or enterprise.

Manufacturing: Manufacturing is the process of producing physical goods, products, or components

through various methods.

Organizational: Organizational refers to the structure, systems, and processes that make up an

organization.

Performance: Performance refers to the achievement of desired outcomes, results, or goals, typically

measured against established standards, benchmarks, or expectations.

Policy: A policy is a deliberate plan of action, guiding principles, or set of rules that outline an

organization's stance, objectives, and approach to a specific issue or activity.

Quoted: Quoted refers to a statement, phrase, or passage that is repeated or referenced from another

source, often to support an argument, illustrate a point, or add context.

1.10 Case/Historical Background of Selected Manufacturing firm in Nigeria

DANGOTE FLOUR PLC, IBESE

Dangote Flour Mills Plc engages in the milling of wheat and production of wheat products in Nigeria.

The company operates through Flour and Pasta segments. The Flour segment is involved in the milling

and sale of bread and confectionery flour, semolina, and wheat meal. The Pasta segment manufactures

and sells spaghetti and macaroni. The company also trades in yellow corn. The company was formerly

known as Tiger Branded Consumer Goods Plc and changed its name to Dangote Flour Mills Plc in

April 2016. Dangote Flour Mills Plc was founded in 1999 and is based in Lagos, Nigeria. Dangote

Flour Mills Plc is a subsidiary of Dangote Industries Limited. As of October 14, 2019, Dangote Flour

Mills Plc operates as a subsidiary of Crown Flour Mills Nigeria Limited.

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Dangote Flour Mills Plc is a subsidiary of Dangote Group, a leading Nigerian conglomerate with

interests in various sectors such as cement, sugar, salt, and food processing. Dangote Flour Mills is

one of the largest flour milling companies in Nigeria, with a capacity to mill 3.5 million metric tons of

wheat per annum.

Dangote Flour Mills produces a wide range of flour products, including wheat flour, bread flour,

semolina, and pasta.

The company's products are used in various food applications, such as baking, cooking, and food

processing, and are sold to both retail and wholesale customers across Nigeria. Dangote Flour Mills

has a strong brand reputation in Nigeria, with a brand that is well-known and respected for its quality,

reliability, and consistency. The company has invested heavily in branding efforts, including the

development of a unique brand identity, brand personality, and brand communication that resonates

with its target audience.

Dangote Flour Mills has also been committed to promoting sustainable agriculture and supporting

local farmers, which has helped to enhance its brand image and build customer loyalty. The company

has implemented various initiatives to support smallholder farmers and improve the sustainability of

its supply chain, such as providing training and inputs to farmers, promoting good agricultural

practices, and sourcing locally produces wheat

Dangote Flour Mills, the company faces increased competition in the flour industry in Nigeria, with

new players entering the market and existing players expanding their product lines. This has led to

increased pressure on Dangote Flour Mills to differentiate itself from competitors and maintain its

market position

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LAFARGE AFRICA PLC

Lafarge Africa Plc is a building solutions company headquartered in Lagos and quoted on the Nigerian

Stock Exchange. It is majorly controlled by the Holcim Group. Previously trading under the name of

Lafarge Wapco Plc, the merger of Lafarge and Holcim and resulting consolidation of Lafarge's assets

in Nigeria and South Africa resulted in the name change to Lafarge Africa.

It is one of Nigeria's leading building solutions company and was second in terms of volume produced

in 2017. In 2010, the firm formally launched a ready-mix division. In 2016, the firm's capacity was

14.1 million tonnes of cement, 5 million metric tonnes of aggregates and 3.5 million tonnes of ready-

mix concrete.

The company manufactures and distributes products through its associated divisions that include

WAPCO, United Cement Company of Nigeria, Calabar, Ashaka Cement, Lafarge South Africa and

Atlas Cement Company. Company's brand products include Ashaka branded Portland limestone

cement produced in Gombe State, Elephant and Superset cement produced by WAPCO, UniCem,

Readymix Concrete, building aggregates, and Lafarge South African products such as

artevia decorative concrete products, Buildcrete and DuraBuild cement, Dura-Pozz, Fast-Cast, Pozz-

Fill, Powercrete Plus and SuperPozz.

NESTLE NIGERIA PLC

Nestle Nigeria Plc is a publicly listed food and beverage specialty company headquartered in Lagos.

It's mostly owned by a holding company based in Switzerland and have ties to the company Tolaram

Group. The company was founded in 1961 and conducted trading under the name of Nestle Products

Nigeria Limited. It has its main factory in Agbara Industrial Estate, Ogun State. The firm

manufactures breakfast cereal, baby food products, food seasoning and hydrolyzed plant protein mix.

The firm was listed as one of the largest 100 companies in Africa by Africa Business magazine.

23
The company began business under the trade name of Nestle Products Nigeria, in 1969, the name was

changed to Food Specialties Limited. It began trading on the Nigerian Stock Exchange in 1979

following an indigenization promotion decree. In 1991, the company's name was changed to Nestle

Foods Nigeria, and ten years later it became Nestle Nigeria PLC. At its inception, the firm's operation

was in the distribution and sales of Nestle products which had previously been imported into the

country by merchants. In 1971, improved demand for its Maggi seasoning product led to the

establishment of a packaging plant in Lagos.[3] The firm leased land at the newly created Agbara

Estate in 1978 and three years later began manufacturing Maggi and Milo products. In 1982, Nestle

began producing Cerelac in Nigeria at Agbara. Between 1984 and 1986, the company introduced

baby-weaning products with higher local content, these include Cerelac Maize and Nutrend, with a

mixture of soy and maize. It later introduced Chocomilo, a confectionery item. In 2011, the firm

expanded production of its marquee with the opening of a Maggi factory in Flowergate, Ogun State.

[4] Nestle Waters Nigeria inaugurated a community water facility to ensure safe and healthy drinking

water in the Magedari suburb area of Abuja which was part of Nestle's effort to ensure healthy

hydration.

HONEYWELL FLOUR MILLS PLC

Oba Oteudeko started Honeywell Group as a trading enterprise in 1972. Initially, the company

majored in importation and marketing of commodities between the North and South of Nigeria and

later across the West African sub-region, especially Ghana. The company traded baking yeast, stock

fish, glass, steel rods and other commodities. The Group has since evolved into a leading Nigerian

conglomerate employing over 5000 staff. Gateway Honeywell Flour mills, a food processing

company, was registered in 1985. The company later changed its name to Honeywell Flour Mills

Plc. It produces flour-based products including baking flour, ball foods, noodles and pasta.

24
Honeywell Group has also recorded a number of milestones in its almost five decades of operations.

Some of these milestones are: listing of Honeywell Flour Mills on the Nigerian Stock Exchange in

2009 after an initial public offering (IPO) in 2008; opening of the first Radisson Blu hotel brand in

Nigeria in 2011 (the Radisson Blu Anchorage Hotel in Victoria Island); and launch of the first

trampoline park in West Africa, called Upbeat Recreation Centre, Lekki Lagos.

During the Centenary anniversary of Nigeria in 2014, the Federal Government recognised the

Honeywell Group among the top 100 companies in the country.

In 2021, Flour Mills of Nigeria acquired 71.6% of Honeywell Flour Mills.

25
 CHAPTER TWO

REVIEW OF LITERATURE

2.1 Conceptual Framework

2.1.1 Concept of Dividend Policy

Dividend is the portion of the profit after tax, which is distributed to the shareholders for their

investment bearing risk in a company. Dividend payout policy is the firm’s decision of whether, how

and when to distribute cash to the stockholders. Dividend provides cash flows to the shareholders as

well as information about the firm’s current and future financial performance. The dividends generally

influence the share price in a positive direction as shown by earlier empirical works (Irmala, Sanju and

Ramachandran, 2017; Khan & Amanullah, 2019). Dividend payment is a major component of stock

return to shareholders (Zakaria, 2018). Jo and Pan (2019) assert that dividend payment could provide a

signal to the investors that the company is complying with good corporate governance practices.

Dividend payout is the amount of cash that a company sends to its shareholders in the forms of

dividends. The company can decide to send all the profits back to its shareholders or investors, or

could keep a portion of it as retained earnings. Healthy dividends payouts thus indicate that companies

are generating real earnings rather than; cooking books (Barron, 2018).

The dividend policy of companies has been a common subject of research for more than ! half of a

century (Litner, 2019; Gordon, 2019; Modigliani, 2018; etc). The value relevance of dividend policy

has been in the forefront of financial research since Miller and Modigliani's (1961) pioneering Work.

Dividend policy has long been an issue of interest in the financial literature and, despite the vast

research on the topic, it remains an open subject. Ever since the work of John Lintner (2016), followed

by the work of Miller and Modigliani (2017), dividend policy remains a controversial issue. In fact,

this has been true since Miller and Modigliani"s (2019) irrelevance proposition, according to which

26
dividend policies are all equivalent and there is no particular policy that can increase shareholders’

wealth in perfect capital markets.

There are four dividend policies in practice as outlined by Pandey (2018);

i. Residual dividend policy which dictates the payment of dividends in the absence of investment

opportunities,

ii. Constant amount per share,

iii. Constant amount per share plus extra depending on profits

iv. Constant payout ratio.

Owning corporate stock is a popular investment activity (Gitman, 2016). All types of investors either

large institutional or individual could see the new media for the report on the movements ofthe stock

prices. Share prices are the most important indicators used by investors to invest or not to invest on a

particular share. Their main objective of investing in the stock market is to maximize the expected

return at low level of risk.

Dividend payment is a major component of stock return to shareholders. Dividend payment could

provide a signal to the investors that the company is complying with good corporate governance

practices Huka (2018). Good corporate governance practices are valuable for a company as it is

implying that the company is able to raise funds from capital market with attractive terms. By

distributing dividend, it’s able to attract investors and indirectly increase the company share price.

This sort of company could easily raise funds through new share issuance for expansion which then

would increase profits and increase share price.

Dividend policy provides the management with guidelines and regulations to determine the

proportions of the firm returns to be retained and to be distributed to the shareholders as cash dividend

respectively (Alii, Khan & Ramirez, 2017). Dividend policy is the schemes and rules followed by the

27
management when rewarding the owners ofthe firm for investing their financial resources in that

venture (Nissim & Ziv, 2017). Kehinde and Abio'la (2018) defined dividend policy as a plan that

guide management to distribute the returns of a firm to the common stock investors using diverse

forms of dividends within a certain period of time. The scheme followed by a firm to distribute

income, aims at achieving specific goals (Brigham & Ehrhardt, 2016). According to Litner (2016),

management continuously alternate the rate of dividend payments until it reaches an optimal dividend

policy level in the long run. Hence dividend policy is summarized into three perspectives; the amount

to pay, the frequency of dividend payments and the mode ofpaying dividends which is either in cash or

non-cash form.

The amount paid to shareholders by the management is further guided as either residual or stable

dividend policies. The residual policy is employed by companies which rely on retained earnings to

facilitate profitable projects identified (Aduda & Kimathi, 2017). This approach is applicable once all

financing requirements of the firm have been met. Myers (2019) argued that firms distribute cash

dividends to shareholders once all ventures which are viable have been fully financed using firm

earnings. The implication of this action is that firms give first priority to the available profitable

investment opportunity and then reward shareholders with cash dividends in case there are some cash

residuals. Hence, the amount of cash to be distributed to them are some cash residuals. Hence, the

amount of cash to be distributed to the shareholders is determined by the cash remnants after capital

investment.

Contrary to residual approach, stable dividend policy entails payment of regular installments of a

specific cash dividend quantity on yearly basis regardless of company return fluctuations (Ap Gwilym,

Morgan & Thomas, 2018). Such guidelines include; fixed payout policy, fixed dividend per share

policy and low-regular plus extra policy. The constant payout policy involves fluctuating periodical

28
distribution of cash dividend to shareholders for the dividend plan is guided by a predetermined fixed

proportion of the firm earnings. The shortcomings of this approach arise when earnings drop or

worsen. In such a case the company experiences losses hence it will be forced to pay less or no

dividend at all. This makes investors less assured of their cash dividend reward (Brigham & Ehrhardt,

2012). The constant dividend per share is a dividend scheme whereby management sets a fixed

amount of cash dividend per share to be paid to shareholders at any given period of time which

translates to a periodical constant rate of change on I dividend paid. This reduces uncertainty on future

dividends since dividends become more predictable and as a result, the management makes an upward

adjustment of cash dividend to be paid to shareholders if they are assured of permanent future firm

earnings (AP Gwilym, 2016).

The low-regular plus extra policy involves payment of low regular dividends supplemented by an

additional dividend whenever the company’s earnings are good or higher than normal in a given

dividend period. The dividend strategy is convenient to the management for it can match low income

seasons and high income periods with low to high rates of cash dividend in that order. This dividend

arrangement creates confidence to shareholders for they are assured of at least some returns even

during the loss making periods of the firm and also share improved returns when the firm has made a

fortune in a particular period of time (Marsh, 2017).

Frequency of dividend payment is taken to imply the dividend timing which in the Nigerian context is

commonly done semiannually (interim dividend) or at the end of the financial period (proposed

dividend). Interim dividend is that part of total surplus declared and paid before the end of the

financial period and the time intervals for making such payments is either quarterly or semiannually

(IASB, 2018). Prior to payment of interim dividend, the accounting books of the firm are checked and

confirmed by auditors. Final dividend, also known as proposed dividend is that part of firm earnings

29
that is declared by the management at the end of the financial period to be paid at a later date based on

audited financial results. In addition, the interim dividend paid in the course of the financial period, is

assumed to be the final reward to the shareholders if the firm does not provide for final dividend

(IASB, 2018).

Distribution of dividends to shareholders is also based on the manner ofrewarding. The mode of

distributing dividends to shareholders was classified by Copeland (2019) as cash and non-cash form.

Although distribution of firm wealth is commonly done through cash dividend. In such a case,

shareholders get a chance to invest the cash received in other opportunities of their choice, whereby

the act adversely affect the firm net asset value. This is because payment of cash dividend entails an

actual cash outflow which calls for taking precautions to avoid damage of liquidity position of the

firm; hence a safety cash reserve is required. Fakru and Thoufiqulla (2018) defined stock dividend as

the distribution of additional shares to the already existing shareholders free of charge. It is also

referred to as of bonus or script issue. To measure bonus issue, Kibet, (2016) established a bonus ratio

expressed as number of new shares (bonus) to existing shareholders per annum. Property is sometimes

used as dividend whereby the shareholders are allocated physical assets instead of cash or additional

free stocks. Murelcefu, (2017) says that cash dividend announcement convey valuable information

which shareholders do not have about management’s assessment of a firm’s future profitability, thus

reducing information asymmetry. Such information can be made use of by investors in assessing the

firms’ financial performance and making investing decision.

The model developed by Musa (2015) for the purpose of explaining and predicting the dividend

payment of corporate firms in Nigeria. Musa’s parsimonious multiple regression model has been

developed using the confirmatory specification approach and has been structured using the Ordinary

Least Squares (OLS) method. The model uses dividend change (CD), and five principal explanatory

30
variables - Current Earnings (Eit). Preceding Year Dividend [DIV (t-I)], Cash Flow (CF), Investment

(INV) and Net Current Assets (NCA) as explanatory variables. Three dummy variables - Growth (DI),

Firm Size (D2) and Industry Classification (D3) have also been separately added to the base model.

Musa (2019).

Dividend policy no doubt influences the decision of both local and foreign investors (Musa, 2001).

Studies on dividend policy are therefore of clear policy relevance, especially for a country that is

interested in rapid and sustained economic growth.

Researchers on corporate dividend policy have over the years followed two divergent paths. Some

researchers have followed a behavioural approach by surveying the opinion of corporate managers in

order to gain insight into the factors they consider most important in determining their firms’ dividend

policy. Studies in this category include the works of Baker, (2015), Farrelly etal. (2016), Baker and

Farrelly (2018), Pruitt and Gitman (2022), Baker and Powell (2019) and Mainoma (2019). These

studies found that different managers at different times attach varying importance to the factors that

influence a firms, dividend decision. However, certain factors such as level of current and past

earnings and the pattern of variability of past dividends have emerged as consistently important over

the years.

2.1.2 Concept of Dividend Per Share

Prior literatures depicted a positive signification relationship between dividend per share and market

stock price (Zahir & Khanna, 2018; Irfan and Nishat, 2020; Gitmon and Lowrence, 2017; Sharma,

2017). Srinivasan (2018) discovered a negative significant relationship between dividend per share and

market stock price of Manufacturing, Pharmaceutical, Energy, and Infrastructure Company.

Consequently, the principle of wealth creation in finance is mostly based on the notions of dividend

payouts and share (stock) price increases. A number of scholars who believe in wealth creation, such

31
as, Bainbridge (2019); Jensen (2017); Brigham & Ehrhardt (2016); Brealey and Myers (2019), and

Moyer, McGuigan & Kretlow (2021) argue that shareholders5 wealth is maximized when the

company gives out a regular dividend to shareholders and when the stock price appreciates on the

stock market so that the investor makes some capital gains. It is assumed that stock holder wealth

creation is the priority objective of most listed companies (Watson & Head, 2020), and therefore

existing and potential shareholders focus much on how their investment in a listed company will be

safeguarded and multiplied to their economic benefit.

Emekekwue (2018) defined dividend as that portion of after tax profit that is shared out to the

shareholders as reward for investment. According to him, dividend puts disposable income in the

hands of shareholders. He therefore classified divided into three main types: Cash dividend, Stock

dividend and Stock splits. Similarly, Pandey (2015) defines dividend as that portion of a company’s

net earnings which the directors recommend to be distributed to shareholders in proportion to their

shareholdings in the company. The dilemma is whether the management of a firm should distribute

cash to shareholders or reserve the cash to finance new investments. Dividends represent a direct

payment to shareholders. Earnings that are retained by the firms increase the value of the firm in that

they can either be invested in projects within the firm that will enhance future earnings or be invested

elsewhere at the market interest rate and be paid out as dividend in the future (Baye and Jansen, 2016).

Enhancing shareholders wealth and profit making are among the major objectives of a firm (Pandey,

2005). Shareholders wealth is mainly influenced by growth in sales, improvement in profit margin,

capital structure decisions (Azhagaiah and Priya, 2018). Firm’s performance in this case can be

viewed as how well a firm enhances its shareholders. Dividend policy can affect the value of a firm

and in turn, the wealth of shareholders (Baker, 2018). Dividend policy is therefore, considered to be

one of the most important financial decisions that corporate managers encounter (Baker and Powell,

32
2019). It has potential implications for share prices and hence returns to investors, the financing of

internal growth and equity base through retentions together with its gearing and leverage (Omran and

Pointon, 2017). Hence a firm ought to pay dividends to shareholders if it cannot identify suitable

investments which would bring higher returns than those expected by the shareholders.

FIRM PERFORMANCE

Firm performance refers to a measure of a company's ability to generate revenue over a given period

of time and it includes a subset of organizational effectiveness that covers operational and financial

outcomes (Santos and Brito, 2017). Firm performance can be measured by the income generated by

the company in terms of profitability (Murekefu and Ouma, 2019). Profitability is the operational fact

of every profit making organization. It constitutes the short and long-run management planning and

operating strategies. Financial performance is used to indicate firm’s success, conditions and

conformity. Shareholders, investors, creditors, managers are interested in knowing the financial

performance of a firm before investing (Enekwe; Nweze and Agu 2019).

DIVIDEND POLICY

Dividend policy has been defined by Eniola, and Akinselure, (2016) as the approaches adopted by

management to ensure that appropriate dividend payout/retention decision is taken at every available

opportunity. Akani, and Sweneme (2016) explained that dividend policy is a function of dividend

payout ratio, ownership structure, capital market operations, inflation and the legal framework. It can

be residual, stable or predictable policy, low regular plus extra policy or regular payout. Dividend

policy does not focus only on current performance and future prospects of the firm but addresses the

agency problems between the managers and the outside investors. The above factors support much of

the empirical fact that the increase in dividends is a kind of good news resulting from increase in stock

prices (Fairchild, 2018). According to (Kajola, Adewumi, and Oworu, 2018) dividend policy

33
comprises the guidelines, regulations, and corresponding decisions of managers of a company

concerning dividend payments to the shareholders of the company. This decision has a significant

impact on shareholders’ wealth and investment decisions, and thus it is a major concern of corporate

strategy. A range of factors affect dividend decisions which include financing constraints, investment

choices and prospects, size of the firm, expectations of shareholders, and regulatory requirements

among others. The dividend payments do not reflect the current state of the financial health of a

company only but serve as an indicator to the future performance (Kajola, Adewumi, and Oworu,

2019).

Dividend has been defined by authors and researchers. Bierman (2021); Frankfurter and Wood (2017)

sees it as an appropriation of profits to shareholders after deducting tax and fixed interest obligations

on debt capital. Dividend is the return that is distributed to shareholders as a result of the money

invested in acquiring the stock of a company (Eriki and Okafor 2018). It is a compensatory

distribution to equity shareholders for both time and investment risks undertaken (Uwuigbe, 2017).

Pandey (2019) establish dividend as a portion of a company’s net earnings which the directors

recommend to be shared among shareholders in proportion to their shareholdings in the company. It is

usually articulated as a percentage of nominal value of the company’s ordinary share capital or as a

fixed amount per share. According to William and Scott (2016), dividend is a periodic cash payment

that firms make to investors who hold the firms’ preferred or common stock. Dividend is the tangible

benefit that shareholders of a company obtain for their wealth invested. This is also called the return

on their investment.

34
 CONCEPTUAL REVIEW DIGRAM

Independent Dependent

variables variables

Effect
Dividend policy Firm performance

Dividend payout
Return on
Dividend policy
Dividend yield Investment (ROI)

Book value per share

Relationship between dependent variable and independent variable

Source: Conceptual diagram from literature review (2018)

This section discusses the variable which constitute elements of dividend policy to influence firm

performance

2.1.3 Concept of Dividend Payout Ratio

Dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total

net income of a company. The amount that is not paid out in dividends to stockholders is held by the

company for growth. The amount kept by the company is called retained earnings. Investors seeking

high current income and limited capital growth prefer companies with high. dividend payout ratio.

However, investors seeking capital growth may prefer lower payout ratio because capital gains are

taxed at lower rate. High growth firms in early life generally have low or zero payout ratios. As they

35
mature, they tend to return more of the earnings back to’ investors. Dividend payout ratio is calculated

as dividend end per share all divided by earnings per share. This is the ratio of firm’s earning over the

dividend paid to the stockholders. It is the reciprocal of dividend payout ratio. Dividend cover depicts

the degree to which dividend per share is protected by the firm’s earning. It is calculated from

literatures as earning per share divided by dividend per share. Zhou and Ruland (2016) revealed that

high dividend payout firms tend to experience strong future earning but relatively low past earnings

growth despite market observers having a contradicting view. Arnoth and Asness (2018) also revealed

that future earnings growth is associated with high rather than low dividend payout. A high payout

ratio means more dividends and less funds for expansion and growth. A low payout, on the other hand,

results in a higher growth (Pandy, 2019). Considering dividend payout in information perspective, the

dividends signaling theory prescribes that dividend payout can be used as a device to communicate

information about a company’s financial performance to investors.

2.1.4 Relationship between Dividend and Earning Per Share

A firm that earns profit faces the choice of allocation of its profits between dividends and

reinvestment. Miller and Modigliani (2019) theorem says that investment policies are the • i main

determinants offirm value and therefore dividend payments must be made out of the earnings in excess

of the required capital expenditure. However, dividend payments are necessary and at least current

dividends must be maintained (Lintner, 2016).According to Linter dividends must be paid out of

earnings and not from residual earnings. In order to find out the relationship between dividend payouts

and only permanent part of earnings or stable earnings, earnings were decomposed into permanent and

transitory parts by Lee (2016) in a time series analysis. The study of dividends in relation to only

permanent part of earnings supported the notion that dividends show strong behavior towards the

permanent change in earnings- which is also called permanent earning hypothesis in literature. On the

36
other hand there is a hypothesis called partial adjustment hypothesis which states that managers have a

target dividend and they partially adjust their dividend to that target dividend over time (Lee, 2016).

They only make adjustments if they have reasonable indications to believe that the change in

dividends will not have to diminish in near future. These inferences were made using vector auto

regressive models and co integration regression and suggested that permanent adjustment hypothesis is

true only in case where target dividends are in particular i proportion of permanent income rather than

current earnings. Fama and Babiak (2018), Pettit (2019) and Watts (2017) view earnings as the

possible causation of dividends particularly in case of micro behavior of individual firms. Their

analysis and finding support the notion that managers increase dividend payments only to increase in

unanticipated and non-transitory changes in earnings, which is also propagated by Lintner

(2016).According to the theory of dividend stabilization in practice most of the firms adopt stable

dividend policies that do not adjust their dividend policies straight away when their earnings change

(Lintner, 2016) because firms are reluctant to decrease dividends thus they only increase dividends

when they have reasonable evidence that the earnings will increase in future with stability (Miller &

Modidliani, 2019).

Higher dividend payouts are associated with higher future earnings. Higher dividends and higher

future earnings relationship was found in a company level or individual analysis. Zhou and Ruland

(2016) analyzed this relationship under various conditions and results have strong association between

dividend payouts and future earnings for example in case of different measures of earnings, after

Controlling mean reversion in earnings, different sub-periods, taking into account different industry

effects and impact of share repurchases. Zhou and Ruland, (2016) also tested Free Cash Flow Theory;

relationship between payouts and earnings was found stronger for low growth companies or for

37
companies which have tendency towards over-investment. Future earning information plays an

important role in the determination of dividend policy.

2.1.5 Concept of Financial Performance

Leah, (2018) defined financial performance as the measurement of the outcome of firm strategies,

policies and operations in monetary terms. These results are reflected in the firm return on assets and

return on investments. Similarly, Adams and Mehran (2015) defined financial performance as the end

result of primary utilization of firm assets to generate Proceeds during ordinary business operations.

Financial performance can also be used as a general measure of a firm overall financial level over a

particular time duration and can be used for comparison of general performance of different firms

operating in the same industry. In general, financial performance is a gauge to express the general

financial productivity of an organization over a span of financial period and aids in comparison of

financial results of other firms in the same sector.

Also, the level of financial performance explains the extent to which a firm has succeeded (Waweru,

2018). There is no one universally accepted proxy for measuring financial performance of a firm.

From a wider perspective, financial performance of a firm takes both accounting and market based

dimensions (Waggoner, Neely & Kennerley, 2019). The accounting based proxies used to measure

financial performance are diverse and some of those measurements are; return on equity, earnings per

share, return on assets and operating cash flows (Al-Malkawi, 2017). The shortcomings of using

accounting based indicators is that it represents a short term financial performance implication to

management and also their values are determined from historical data and therefore they cannot be

fully relied upon to make future firm decisions (Klapper & Love, 2021). Another limitation of using

these proxies is that they are anchored on Accounting based professional rules, regulations and

standards. However, operating cash flows being one of the Accounting based proxies, it is least

38
adversely influenced by the accounting practices (Ahmed & Javid, 2019). Current study used ROE and

operating cash flows as accounting based approaches to measure financial performance of the firms

under study. Return on equity is the profit after tax to total equity quotient (Al-Malkawi, 2017).

Operating cash flows is expressed as the coefficient of the sum of profit after taxation and noncash

items and total assets net of cash and cash equivalents (MilletReyes & Zhao, 2018).

The market based indicators commonly used in measuring financial performance of a firm are wide-

ranging. Some of those proxies are; Tobin’s Q, market to book value, dividend yield and price

earnings which are futuristic and long term in nature. These market-based proxies represent the

expectations of the shareholders on the firm future performance (Omran & Pointon, 2016). The current

study used market to book value and price earnings to gauge financial performance. The market to

book value is a coefficient representing the ratio of market to book value of common stock (Fairchild

& Li, 2015) whereas, price earnings is a coefficient of market price of common stock and earnings per

share of a firm (Ehikioya, 2019).

2.2 Empirical Review

2.2.1 Dividend Per Share and Financial Performance

The concept of dividend policy has faced unresolved argument by researchers although it is a pivotal

decision for the prosperity of firms in both advanced and upcoming economies (Hafeez & Attiya,

2019). The dynamics of dividend policy has remained anonymous in most study findings focusing on

its relationship with other associated variables. The firm dividend policy practices by different firms

has not been universally accepted (Brealey & Myers, 2017).

Wladjian and El Khoury (2019) sought to investigate the determinants of dividend policy j Lebanese

banks, listed at the Beirut stock exchange. To examine this matter, seven Variables were put under

consideration, namely; firm productivity in terms of profitability, i liquidness, debt equity coefficient,

39
size of the firm, firm growth rate, risk profile and dividend payout ratio for the previous period. The

study used unbalanced panel dataset of listed banks between 2005 and 2011. Two approaches were

tested using the ordinary least squares and the dynamic panel regressions. It was depicted that a

proportionate change of the size of the firm, risk level of the firm and previous year’s dividend payout

led to a proportionate change in dividend payout ratio. Whereas a simultaneous upward change in firm

growth rate and earnings lead to less attractive change in dividend payout ratio.

Hashim, (2019) investigated on the determinants of dividend policy as it was in the case of Maladjian

and El Khoury (2016) study. They focused on firms dominating the - j Pakistan banking sector. In

their case, they identified nine independent variables, namely; firm size, leverage, agency cost, firm

growth rate, risk, liquidity, profitability, previous year’s dividend and ownership structure. A sample

size of twenty-seven (27) overseas and local financial firms which provided banking services in both

Islamic and orthodox sectors were selected for the study. The researchers utilized stepwise regression

methodology and three study outcomes were realized. One, the study revealed that liquidity,

profitability, last year’s dividend and ownership structure had a strong direct link with dividend payout

ratio. Second, liquidity depicted a negative relationship with dividend payout ratio and third, dividend

payout ratio was not significantly influenced by size of the firm, leverage, -7 agency cost, firm growth

rate and risk level of the firm. Therefore, in these research findings, it was ruled out that dividend

payout ratio was high where the firm engaged in profitable ventures compared to less profitable ones

although Maladjian and El Khoury, 2018) established an indirect connection between profitability and

dividend payout ratio, contrary to Hashim, (2018) study outcome.

Uwuigbe (2018) study investigated on the nature of linkage between financial performance and

dividend policy of listed firms at the Nigerian stock exchange. The objective of the study was to

examine the effects of financial performance, firm size, financial leverage and board independence on

40
dividend payout ratio affirms listed at the Nigerian stock exchange market. Purposive sampling

technique was used to select fifty (50) firms for the study. The financial records for the period between

2014 and 2023 were used to collect the relevant data. Regression methodology was used for data

analysis whereby it was established that the association between dividend payout ratio and firm size,

board independence and financial performance was proportional and statistically significant for firms

listed at the Nigerian bourse. Harley and Ayodele (2017) empirically investigated the impact of

dividend policy on performance of quoted companies in a developing economy. The objective of the

study was to empirically test some ratio variables likely to affect dividend policy on a multivariate

methodology. The sample size of this study was twenty quoted firms in a developing nation actively

operating within 2005 to 2016 in the stock market. It was deduced that there is a significant positive

impact of dividend pay-out ratio (DPS) on return on asset of .176. One percent increase in dividend

payout ratio will lead to a corresponding increase on the average of0.176 in return of asset (ROA).

From our analysis, we found out that the coefficient of determination (R) captured a significant portion

of the models applied in the study but model two become stronger. We also found out that there is a

positive relationship between ROE and DPS of .540 and the slope of the regression line is .129. This

indicate that one percent increase of DPS will lead to a corresponding increase on ROE. The study

there concluded that profit after tax should be considered sensitive in relation to dividend payment.

Topal (2017) analysed the relationship between dividend policies and financial performances of the

companies operating in Istanbul Stock Exchange. The study used data of 172 companies outside of

financial sector from 2008-2011. Multiple regression was employed to analyse the data. The results of

analysis showed that dividend payments had influence on firms’ performances. Also, there was a

positive and statistically meaningful relationship between the dividend per share rate within groups

and market based performance indicator (Tobin’s q) while there was a statistically insignificant

41
relationship between accounting based performance indicators (ROA & ROE) and dividend per share

rate. The study concluded that dividend polices of firms are influential on their performance. Rachid

and Wiame (2016) examined the relationship between dividend policies and financial performance of

selected listed firms in Morocco. Secondary data were analyzed using panel data regression model.

The findings indicated that dividend payment and total assets had a significant and positive

relationship with firm performance. The study therefore concluded that dividend policy was relevant.

Farrukh, Irshad, Khakwani, Ishaque and Ansari (2017) established the impact of dividend policy on

shareholders’ wealth and firm performance in Pakistan between 2006-2015. A sample of 51 firms

were drawn and the regression result found out that dividend policy proxied by dividend per share and

dividend yield had positively significant impact on shareholders’ wealth and firm performance. This

study supported dividend relevance theory, signaling effect theory, bird in hand theory and clientele-

effect theory. Mutie (2017) sought to determine the relationship between prior period dividends and

the financial performance of firms listed at the NSE. The study reviewed related literature with regards

to the area of study which seemed to favor the argument that dividend payment indeed leads to a better

financial performance for a firm. To undertake the study, a population of all companies listed at the

NSE was considered of which a sample of 34 companies was selected. The variables in the study were

the firms’ financial performance (earnings per share) and the prior period dividends (dividend per

share). The study relied on secondary data collected from the companies’ websites, CMA, NSE and

ICPAK amongst other sources. The information was examined utilizing the exploitations of Statistical

Package for Social Scientists (SPSS) and after that introduced as tables and charts. The consequences

of the study uncovered that greater part of firms appreciate a superior money related execution as

showed by their EPS in the wake of issuing profits. All things considered, a relationship without a

doubt exists between earlier period profit installments and monetary execution of a firm.

42
Notwithstanding, the study neglects to mull over different components that likewise influence the

money related execution of a firm.

2.2.2 Dividend Payout and Financial Performance

Kajola, Adewumi and Oworu (2017) sought to find out the nature of linkage between dividend payout

ratio and financial performance of nonfinancial firms registered at the Nigerian stock exchange. A

sample size of twenty-five (25) firms was selected for the study and secondary data was collected for

a. period often years, from 2004 to 2013. Both panel data and pooled ordinary least squares regression

models were employed to establish the coefficient of predictor and the control variables respectively.

Profitability was used as the predictor variable whereby it was measured using rate of return on assets

whereas dependent variable was dividend policy which was measured using the dividend payout ratio.

The study by Kajola, (2015) classified firm size, asset tangibility and leverage as : control variable.

The study findings revealed that a proportionate change in dividend payout ratio resulted to a

proportionate change in financial performance of the firms. In conclusion, the study recommended that

firms should dedicate their time to determine the appropriate dividend policy that propels projects with

positive NPV value. Dividend payout and return on assets used in the study are only a component of

dividend policy and financial performance respectively and does not fully represent all dimensions of

the two variables.

Murekefii and Ouma (2019) interrogated the relationship between dividend payout and firm

performance of firms listed at the Nairobi securities exchange. Data obtained for the study was

secondary for it was gotten from the financial statements of the listed firms. The study covered a time

range of nine years, from 2002 to 2010. To measure dividend payout, actual amount of cash paid was

used while for firm performance, profit after tax was used as proxy. Multiple regressions were

performed and the outcome of the study showed that dividend payout ratio directly influenced firm

43
performance and the association was strong. It was concluded that dividend payout ratio is a key

predictor of firm performance. The study recommended that managers should dedicate enough time to

develop an appropriate dividend policy to boost firm performance. Umar and Saidu (2016) assessed

the relationship between dividend policy and financial performance of oil and gas companies in

Nigeria from 2005 and 2014. Pearson correlation and multiple regressions were used for the data

analysis. The study found out that dividend .payout has a significant positive relationship with the

financial performance of the oil and gas companies. Also, dividend payout squared has a significant

negative relationship with the financial performance of the companies. The study concluded that

dividend payout of oil and gas companies has an optimal level beyond which the relationship tends to

be negative. Adelegan, (2015) identified the determinants of dividend policy of firms in Nigeria from

2009 to 2013. The study analysed data of 48 manufacturing firms listed on the Nigerian stock

exchange. The pooled regression result shows that total distributable earnings determines dividend

payout of corporate firms in general in Nigeria. Results showed that dividend policy of manufacturing

firms depends on profit after tax and earnings. The result also shows that the manufacturing firms

ability to pay dividend depends more on profit after tax. The study therefore concludes that profit after

tax and total distributable earnings are key determinants of firm dividend payment in Nigeria.

Shisia, Sang, Sirma and Maundu (2019) examined the effect of dividend policy on financial

performance of companies quoted at the Nairobi Securities Exchange (NSE). The study sourced data

from secondary sources. A sample of 30 listed companies at NSE was used and regression analysis

was used in testing the hypotheses. The study concluded that there is significant but negative

relationship between dividend payout ratio and firm performance. Dogan and Topal (2016) carried out

an investigation in their study to find out whether there existed a relationship between dividend policy

and financial performance of firms listed at the Istanbul stock exchange. The study used data of 172

44
non-financial companies within a time span of four (4) years from 2008 up to 2011. To achieve the

objective of the study, the firms were classified into two categories. The first category was made up of

those firms which paid cash dividends regularly and group two was composed of those firms which

paid cash dividends following irregular trends. The study investigated - 3 whether there was

significant difference between accounting and market based financial performance between those two

groups in relation to dividend policy. Further, an empirical analysis was undertaken using multiple

regression and t-test as well as descriptive statistics to determine the outcome. The results of analysis

showed that dividend payments had influence on companies’ financial performance. Furthermore, the

connection between dividend per share within groups and Tobin’s q which is a market based

performance indicator was direct and statistically significant. Whereas, there was a statistically

insignificant relationship between accounting based performance indicators (ROA and ROE) and

dividend per share.

Ehikioya (2015) investigated the impact of dividend policy on the value and performance of firms in

developing economies. The sample of this study was drawn from 81 firms listed on the Nigeria Stock

Exchange spanning 2001 to 2010. The study employed panel i regression model to analyze the data.

The findings revealed a significant positive impact of dividend payout on the performance of firms,

measured as return on assets and return on equity.

Rashid and Rahman,(2018) found that there is positive but insignificant relationship between share

price volatility and dividend yield for 104 non-financial firms listed in the Dhaka Stock exchange

during the period of 1999 - 2006. Nazir, (2010) applied fixed effect and random effect models to test

the role of corporate dividend policy in determining the volatility in the stock price for 73 firms listed

in Karachi Stock Exchange (KSE-100) indexed. Contradict to Rashid and Rahman, (2008), the

researcher found that the share price volatility is significantly influence dividend policy as measured

45
by dividend payout ratio and dividend yield. The result of the empirical findings made by Zakaria, et

al, 2012 also suggests there is a significant positive relationship between the dividend payout ratio of a

firm and share price volatility. Uwuigbe, (2018) observed that firm performance has a significant

impact on the dividend payout of listed firms in Nigeria. That is, an increase in the financial well-

being of a firm tends to positively affect the dividend payout level of firms.

2.3 Theoretical Framework

To drive this study, the MM Irrelevance Theory, Signaling Theory of Dividends and Bird in Hand

Theory were succinctly discussed. However, this study will be anchored on the . i bird in hand theory

as it provides a more suitable theoretical explanation for the topic.

2.3.1 MM Irrelevance Theory

The dividend irrelevance theory posits that the dividend payout, pattern and their dynamism do not

affect firm value. These theories aid decision on dividend payout ad patterns for the achievement of

optimal results. These theories are often used to explain the relationship between dividend,

performance and value of firms as previously used in the works. Modigliani and Miller (1961) in their

ground breaking paper about dividend policy, growth and valuation of shares forwarded a proposition

that dividend policy chosen by a firm is irrelevant in as far as valuation of the firm is concerned in an

ideal, economy characterized by perfect capital markets, rational behaviour and perfect certainty. They

went further to state that firm value is rather determined by the quality of a firm’s investment policy

and the earning power of its assets.

MM assumed that capital markets are perfect whereby no buyers or sellers of securities is large

enough to have a significant influence on ruling share prices; that investors are rational meaning that

they always prefer stocks of higher returns and they are risk averse; and that there is perfect certainty

46
hence there is complete assurance on the part of the investors as to future investment programs and

profits of every corporation.

In this study the researcher is trying to establish whether MM"s theory holds in the Nairobi Securities

Exchange situation especially considering that it was conceptualized in the western world where the

economic fundamentals may be substantially different from the third world situation. It is largely

expected that the local investor will in most cases be targeting regular cash flows from his investment

in the security exchange rather than the eventual capital gains over medium to long term.

2.3.2 Signaling Theory of Dividends

Miller and Rock (2015) in their model overlooked the standard finance model which assumes that in a

perfect capital market, both outside investors and inside managers have access to the same information

about the firm’s current earnings and future opportunities. They replaced this assumption with the real

world occurrence whereby managers know more about the firm’s earnings and investment

opportunities more than outside investors. In that case, the announcement of dividends conveys certain

information which is not available to the public thus the model suggests a positive relationship

between asymmetry of information and dividend policy. However, for this hypothesis to hold,

managers should firstly possess private information about a firm’s prospects, and have incentives to

convey this information to the market. Secondly, a signal should be true; that is, a firm with poor

future prospects should not be able to mimic and send false signals to the market by increasing

dividend payments.

Lintner, (2020) argued that firms tend to increase dividends when managers believe that earnings have

permanently increased. This suggests that dividend increases imply long run sustainable earnings.

Lipson, (2018) also observed that, “managers do not initiate dividends until they believe those

dividends can be sustained by future earnings59. Dividends are considered a credible signaling device,

47
that influence market value, because ofthe dissipative costs involved hence the theory is relevant in

this study.

2.3.3 Bird in the Hand Theory

Theory of A Bird in hand propounded by Linter (2017) and supported by Gordon (2020). Who argued

that investors perceive a naira of dividends in the hand are relatively certain .) compare to future

capital gain in the bush. However, the “Bird-in-hand55 theory as argued by Gordon (2019). Bird-in-

the hand theory on the other hand suggests that investors prefer cash in the Hand rather than a future

promise of capital gains due to lower risks (Baker & Powell, 2019). The ‘bird-in-hand5 explanation

argues that a relationship exists between firm value and dividend payout because dividends represent a

sure thing for shareholders as compared to capital gains. Duke, (2015) carried in their study of

dividend policy on commercial banks in Nigeria opined that there is a positive significant relationship

between dividend yield and share price. While Mukora, (2017) stated that there is a significant positive

relationship between dividend announcement and shares yield in the stock market of some selected

firms. Robinson (2016) found different result in study about dividend policy among publicly listed

firms in Barbados, according to him, most financial managers in Barbados seem to take a “bird in the

hand59 view of dividends and retain a strong commitment to paying dividends, and legal restrictions

aside, do not vie share repurchases as an alternative to dividends, as a means of providing cash for

investors. Hence, investors would prefer the “bird-in hand” (cash dividends) to “two-in-the-bush”

(future capital gains).

Although this hypothesis has been challenged by many researchers, yet it has received supports from

studies conducted by Linter (2019), Walter (2019), Gordon (2019). Walter (2019) analyzed the

influence of the dividend policy of a firm and the changes in value just like Miller & Modigliani.

48
Walter concludes that we do live in a world with imperfections and those imperfections lead to

differences in firm value, which contrasts with Miller & Modigliani’s irrelevance theorem.

Lintner (2019) concluded that purely competitive markets, maximizing behaviour, absence of issue

costs and taxes, and identical interest rates to personal and corporate ,debtors are not sufficient to

make investors indifferent to substitutions between retained earnings and debt in financing fixed

budgets. Investors will always have preference for dividends as a result of time value of money.

Gordon (2018) similarly presented an argument that a corporation’s share price or its cost of capital is

not independent of dividend policy. He went on to cross examine MM"s proposition and state its short

comings. Gordon made two assumptions; that investors are risk averse and that uncertainty increases

with increase of time into the future upon which dividends would be received. Consequently, the

single discount rate an investor uses to value a share’s dividend expectations is an increasing function

of the rate of growth in the dividend hence dividend policy influences the value of a share and this

theory is therefore relevant in the current study. MM however criticized the bird in hand theory and

called it a fallacy since most recipients of dividends would invest the funds in the same or different

company.

49
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Research Design

For the purpose of this study, an Ex-post facto (after-the-fact) research design was adopted. This

design suggests that a research is conducted after the event has taken place and required data already

in existence. The research was done after the event has taken place so the study also used the design to

examine the effects of the various dividend policies adopted by firms over the years on the financial

performance of quoted consumer goods companies in Nigeria.

3.2 Population

The population of the study consist of the quoted manufacturing firms in Nigeria made up of 153

companies as of 31st December 2023 according to the Nigeria Exchange Group (NGX), which formed

the entire population of the study.

3.3 Sample and Sampling Technique

A sample is a subset of a population selected for study, The goal of sampling is to obtain a

representative group that reflects the characteristics of the entire population, allowing researchers to

make inferences about the population based on the sample data. Sample is a set of data collected and

or selected from a statistical population by a defined procedure. The sample size of the study is ten

(10) selected manufacturing firms in Nigeria, This study will adopt simple random sampling

technique.

3.4 Methods of Data Collection

This study utilized secondary data. Data was obtained from the financial statements including

statement of comprehensive income and statement of financial position from the individual company

websites from 2014 to 2023. Data on dividend per share, Earnings per share, dividend payout and

50
book value per share were used to calculate from the statement of account. The statements of

comprehensive income and statements of financial position were obtained from the company website

for the period of study.

3.4.1 Technique for Data Analysis and Model Specification

The data analysis involved Regression model. Data analysis was done using STATA Version 13 after

diagnostic test of Variance Inflation Factor (VIF), Multicollinearity, Heteroscedasticity Test were

done. The linear model is In line with prior studies (Kashif, 2019; Akani, and Sweneme 2016) that

have analyzed the effect of dividend policy on performance of firms, the study adopted the models of

Akani, and Sweneme (2016) NPM & ROI = f(DPR, RR, DY, EPS) and Khan, Nadeem, Islam Salman,

and Gill, (2016) Y = f(X), ROA = f(E), ROA = Dependent Variable (EPS, DPS, DPR, BVPS)

Independent Variables

ROA= α + β1DPSit + β2DPR it + β3EPS it + β4BVPS it +ɛ it

Where: ROA= Return on Assets

EPS= Earnings per share DPS- Dividends per share

DPR= Dividend payout ratio

Control variable

EPS= Earnings per share

BVPS= Book value per share

a = constant

e = error term which represents the combined effect of omitted variables

β1 - β4 = Coefficient of determinants

51
Decision rule: From the findings of the study, if the independent variables (EPS, DPS, DPR, and

BVPS.) affected dependent variable (return on assets) the null hypothesis will be rejected or otherwise

accepted.

3.4 Justification of Methods

The choice of ex-post facto research design was based on the fact the study made use of data from

events that have already taken place. The justification for sector was based on the paucity of studies in

the sector and population was rationalized based on the number of companies currently in the sector.

Regression analysis is normally used to examine the relationship and hence the study determined

relationship between one dependent variable and multiple independent variables.

52
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1.1Descriptive Statistics

Table 4.1: Descriptive Statistics on ROA, EPS, BVPS, DPS and DPR

VARIABLE MEAN MAX MIN SD

ROA 2.810884 4.956037 .0024558 7.532231

EPS .0173188 .584867 .0754186 .0587482

BVPS 20.53903 .0020066 .2648915 1 .780715

DPS .2599244 2.529224 0 .4859833

DPR .0718867 .8765 0 .2154523

Source: Author’s Computation, 2024 using STATA VI3

Table 4.1 Presents descriptive statistics of the variable of the study (See appendix for list of

companies). It describes the mean, maximum, minimum and standard deviation. The average mean of

ROA recorded in the period covered by the study is 2.8108, the maximum reached is 4.956037 and the

minimum was 0024558. Meanwhile, the standard deviation stood at 7.5322. The average EPS and

BVPS within this period was 0.0173 and 0.26489 respectively while the maximum and minimum

figure stood at 0.584867, 20.5393 and - 0.0754 and 0.0020 respectively. The standard deviation for

this variables is 0.5874 and 1.7807. Again, the average DPS and DPR stood at 0.2599 and 0.0718 with

a corresponding standard deviation of 0.4859 and 0.2154 respectively. The result shows a minimum

figure of 0 for both DPS and DPR while the maximum figure was 2.5292 and 0.8765 respectively.

53
4.1.2 Correlation Matrix

Table 4.2: Correlation Matrix

ROA EPS BVPS DPS DPR

ROA 1.0000

EPS 0.1621 1.0000

BVPS -0.0490 0.0417 1.0000

DPS 0.3279 0.1100 -0.0175 1.0000

DPR 0.3992 -0.0391 -0.0013 0.2843 1.0000

Source: result via STATA V13

Table 4.2 Present the correlation matrix looks at the relationship between and among the dependent

and independent variables. This study the result of the correction matrix shows that Earnings per share,

dividend per share, and dividend payout ratio has a positive relationship with return on assets while

book value per share has a negative relation with i return on assets. The respective cases indicate the

significance of the relationship given by 1.0000.

4.1.3 Post Diagnostic Test

Test for Multicollinearity

Multicollinearity is a statistical situation where some independent variables in a multiple regression

model are highly correlated. When multicollinearity occurs the correlated predictors provide redundant

information about the responses (Lauridsen & Mur, 2005). It is important to undertake a

multicollinearity test to help reduce the variables that measure the same things (O’Brien, 2017).

According to O’Brien (2017), the Variance Inflation Factor (VIF) measures the impact of collinearity

54
among the variables in a regression model. Values of VIF that exceed 10 are often regarded as

indicating multicollinearity problem.

Variance Inflation Factor Measure of Multicollinearity

Test Table 4.3: Variance Inflation Factor

Variable VIF 1/VIF

DPS 1.11 0.903999

DPR 1.09 0.914136

EPS 1.02 0.980576

BVPS 1.00 0.997717

Mean VIF 1.06

Source: Result via Stata V13

Table 4.3 above shows that VIF and tolerance value for all the variables had mean VIF of less than 10

and tolerance of higher than 0.05 it therefore implies that there was no ; multicollinearity among the

independent variables.

Test for Heteroskedasticity

Heteroskedasticity means that the previous error terms influence other error terms and hence violating

the statistical assumption that the error terms have a constant variance. But, Homoscedasticity suggests

that the dependent variable has an equal level of variability for each of the values of the independent

variables (Garson, 2012). A test for homoscedasticity I is made to test for variance in residuals in the

regression model used. If there exists equal variance of the error terms, we have a normal distribution.

Lack of an equal level of variability for each value of the independent variables is known as

heteroscedasticity, the Breusch-Pagan test developed by Breusch and Pagan (2019) was used to test for

homogeneity in a linear regression model. The rule is that if p-value is greater than 0.05, Ho is

accepted and HI is rejected, if the p-value is less than 0.05, Ho is rejected and HI is accepted.
55
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance

Variables: fitted values of ROA

chi2(l) = 483.87

Prob > chi2 = 0.0000

There is a problem of hetroskedasticity when P-value is less than 5%, the chi square probability of the

result for Breusch-Pagan/ Cook-Weisberg test for heteroskedasticity. The Breusch-Pagan test is

designed to detect any linear form of heteroskedasticity.

4.1.4 Regression Result

Hausman Specification Test

Table 4.4: Coefficients

(b) F (B) R (b-B) Difference Sqrt (diag (V_b V B)) S.E.

EPS 14.18721 19.69809 -5.510876 6.483756

BVPS -.2067564 -.2154488 .0086924 .183156

DPS 3.036439 3.344401 -.3079614 .5733707

DPR 8.264335 11.98152 -3.717184 1.852106

b= consistent under Ho and Ha; obtained from xtreg

B = inconsistent under Ha, efficient under Ho; obtained from xtreg

Test: Ho: difference in coefficients not systematic

chi2(4) = (b-B)' [(V_b-V_B) ^ (-1)] (b-B)

= 5.73

Prob > chi2 = 0.2202

The result of the Hauseman Specification Test in the table 4.4 above, indicates that random effect is

more appropriate to be used for analysis since the p-value is greater than 0.05.
56
Random Effect Result

Table 4.5: Random-effects GLS regression

ROA Coef. Std. Err. z P>|z| [95% Conf. Interval]

EPS 19.69809 9.593681 2.05 0.040 .89482 38.50136

BVPS -.2154488 .3131963 -0.69 0.492 -.8293022 .3984047

DPS 3.344401 1.235494 2.71 0.007 .9228778 5.765924

DPR 11.98152 2.706069 4.43 0.000 6.677721 17.28532

Cons .8029435 .6632722 1.21 0.226 -.4970461 2.102933

Source: Authors computation using STATA 13

The result in the table 4.5 shows the result of the regression analysis. The result shows an r-square

value of 23%, the remaining 77% could be explained by other variables not included in the model. The

probability of F-statistics is 0.000 which is less than 0.05 test criteria which implies that the model is

fit and is capable of explaining the relationship between the dependent and independent variables.

Based on the result as presented above, it indicates that in the absence of dividend policy, companies’

performance will diminish to the tune 23%, however it will also be significant as indicated by the p-

value of 0.000 which is less than 5%.

4.2 Test of Hypotheses

4.2.1 Hypothesis One

The first Hypothesis of the study stated that dividend payout no significant effect on financial

performance of quoted manufacturing firms in Nigeria. The result of the regression showed that

dividend payout has a coefficient of 3.344401 and a p-value of 0.007. Since the p-value is less than

0.05 test criteria the study rejects the null hypothesis which states that dividend payout has no

significant effect on financial performance of quoted manufacturing firms in Nigeria.

4.2.2 Hypothesis Two

57
The second Hypothesis of the study stated that dividend payout ratio has no significant effect on

financial performance of quoted companies. The result of the regression showed that dividend payout

ratio has a coefficient of 11.98152 and a p-value of 0.000. Since the p-value is less than 0.05 test

criteria the study rejects the null hypothesis which states that dividend payout ratio has no significant

effect on financial performance of quoted manufacturing companies in Nigeria.

4.3 Discussion of Findings

The first objective of the study examines the effect of dividend per share on financial performance of

quoted manufacturing companies in Nigeria. The hypothesis tested states that dividend pay share has

no significant effect on financial performance of quoted manufacturing companies in Nigeria. The

result with the aid of regression analysis revealed that dividend per share has a positive and significant

effect on financial performance of companies in the area covered by the study. It therefore means that

a change in dividend per share will result to a change in the financial performance of companies in the

area covered by the study. This finding supports the MM Irrelevance theory and signaling theory and

is consistent with the findings of Uwuigbe (2017) and Kajola et al (2015).

The second objective of the study assesses the effect of dividend payout ratio on financial performance

of quoted manufacturing companies in Nigeria. The hypothesis tested states that dividend payout ratio

has no significant effect on financial performance of quoted manufacturing companies in Nigeria. The

regression result revealed that dividend payout ratio has a positive and significant effect on financial

performance of companies in the area covered by the study. It therefore means that a change in

dividend per share will result to a change in the financial performance of companies in the area

covered by the study. This finding supports the MM Irrelevance theory and signaling theory and is

consistent with the findings of Uwuigbe (2013) and Kajola et al (2015), Monoghe and Ibrahim (2015).

58
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

In corporate finance, dividend policy refers to a company's directors' decision on the amount and timing of

any cash distribution made to its shareholders. The amount of dividends payable is a crucial decision for

59
corporations to make because it is heavily influenced by the company's financial performance. Given that

researchers have been debating the nature of the relationship between firm financial performance and

dividend policy for a long time, the goal of this study was to look into the effect of dividend policy on the

financial performance of consumer goods firms listed on the Nigerian Stock Exchange. The variables studied

included dividend per share, dividend payout ratio, earnings per share, and book value per share. As a result,

the study has the potential to make a significant contribution to the existing literature on corporate finance in

Nigeria. The study was consistent with the MM irrelevance theory and Signaling Theory.

The study was conducted using an ex post facto research design. Meanwhile, the population of this study

included all twenty-one consumer products companies listed on the Nigerian Stock Exchange floors from 2014

to 2023. However, the study used all companies as its sample size. Secondary data sources included public

yearly financial statements from companies during the study's time period. The study used panel regression to

analyze the data, and the results showed that dividend per share, dividend payout ratio, and earnings per

share all have a positive significant effect on financial performance, whereas book value per share has a

negative insignificant effect.

5.2 Conclusion

Based on the findings in Chapter Four (4), the study indicates that dividend per share has a favorable and

significant impact on the financial performance of enterprises in the study's area of focus. This implies that any

change in dividend per share will result in a change in the financial performance of the companies being

studied. The dividend payout ratio has a positive and considerable impact on the financial success of

enterprises in the study's area of focus. This suggests that a rise in dividend payout ratio will result in an

increase in the financial performance of the corporations under consideration.

5.3 Recommendations

Based on the findings of this research study, the study recommended the followings:

60
 1. The management of the sampled companies should improve in their dividend per share to

attract investment from investors. Because the study found that dividend per share positively

affect financial performance of companies. The result of the findings revealed that dividend

per share has a positive and significant effect on financial performance of companies in the

area covered by the study. It therefore. 48 means that a change in dividend per share will result

to a change in the financial performance of companies.

2. The management of the companies under study should ensure that they have a good and robust

dividend payout ratio policy in place that can enhance their level of financial performance and

also attract investments from investors, because this study found dividend payout ratio

positively affect financial performance of companies under study.

3. It is suggested that other studies can consider a wider scope such as studying the entire

nonfmancial sectors.

4. It is suggested that other subsequent studies should employ more variables in a bin to have a

more robust finding.

5. Also future endeavors can consider proxies such as ROE, ROCE, in order to make

comparison.

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