MODELLING THE DIVIDEND BEHAVIOURAL PATTERN OF CORPORATE FIRMS IN NIGERIA
MODELLING THE DIVIDEND BEHAVIOURAL PATTERN OF CORPORATE FIRMS IN NIGERIA
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Date
2005-08
Authors
MUSA, Fodio Inuwa
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Abstract
This study uses the confirmatory specification approach to develop a
parsimonious multiple regression model for the purpose of explaining and
predicting the dividend behaviour of a cross-section of 53 firms in Nigeria
for the period 1993 to 2002. The model employs current earnings, previous
dividends, cash flow, investment and net current assets as explanatory
variables and growth, firm size and industry classification as nonmetric
variables in order to explain and predict two dividend policy factorsdividend
payment and dividend changes.
In particular, the study uses the five explanatory and three dummy
variables in order to determine their effect on a firms decision to pay or
vary dividend. The study hypothesises a significant relationship between
the five predictor and three dummy variables and the two dividend policy
factors.
The study reveals that the five explanatory variables have significant
aggregate impact on the two dividend policy factors. This result provides
evidence on the utility of the model in explaining and predicting the
dividend behaviour of corporate firms in Nigeria.
The study also establishes a significant positive relationship between
current earnings as well as cash flow and the two dividend policy factors.
However, the results reveal that previous dividend is only pos
rly, investment is found to be negatively related to dividend payment
but not significantly related to dividend changes. In both the dividend
payment and dividend change model, the net current assets variable is not
found to be significant.
The tests find growth to play a significant role in dividend policy.
Firm size however does not play any significant role. In addition, the tests
find only modest support for industry related dividend policy effect.
The short-term characteristics of most of the variables in the study
imply that they can be manipulated to suit the interest of the major
stakeholders of a firm. The findings of the study clearly demonstrate the
utility of the model in explaining and predicting dividend payment as well
as dividend changes by existing and potential shareholders of corporate
firms. The findings also demonstrate the utility of the model in monitoring
compliance with the insolvency rule and the possibility of formulating and
enforcing accounting standard on dividend.
On the basis of the findings and policy implications of the study it
has been recommended that board of directors of corporate firms in Nigeria
should utilize the variables used in this study for the purpose of establishing
dividend policy that will attract the clientele of investors that exist in
Nigeria. The study also recommends the use of the model develo
ency rule by firms' creditors. Furthermore, the study recommends
that government should reduce capital gains tax in order to encourage both
growth and matured firms to retain some portion of their earnings for the
purpose of financing their investment opportunities. On the part of the
accounting professional bodies in Nigeria, the study recommends that they
should as a matter of necessity initiate the process of setting up a standard
on dividend.
Finally, the present study recognises the possibility of omitting
potential dividend policy explanatory variables such as operating and
financial leverage, nature and number of shareholders and distributable
earnings. It therefore calls for caution in the extrapolation of the Nigeria.
Description
A DISSERTATION SUBMITTED TO THE POST GRADUATE
SCHOOL,
AHMADU BELLO UNIVERSITY, ZARIA,
IN PARTIAL FULFILMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF DOCTOR OF
PHILOSOPHY IN ACCOUNTING AND FINANCE
Keywords
MODELLING,, DIVIDEND BEHAVIOURAL PATTERN,, CORPORATE FIRMS,, NIGERIA.