ABSTRACT
The purpose of this research work
is to highlight an appraisal on the effect of dividend policy on manufacturing
firms’ share value. Dividend Policy is one of the three major policy areas of
financial management since Nigeria Stock Companies came into existence. it
determine the distribution of earning between payments to stockholders and
investment or reinvestment in the firm. It could be seen as to constitute the
cash flow that accures to the stockholders. The major objective of the study is
to determine the effect of dividend policy on manufacturing firms’ share value.
Other objective is to ascertain the relationship between dividend per share and
earning per share of manufacturing firm, to ascertain the companies dividend
policy that satisfies the objectives of maximizing owners wealth. The study had
a population of forty (40) quoted manufacturing firms. Out of which a sample
size of fifteen (15) were selected using Yaro Yamani formula. The ex –post
facto research design was adopted in the study. Three (3) hypotheses was tested
using correlation co-efficient. It was found out that there is no effect of
dividend policy on manufacturing firms’ share value, There is no significant
relationship between earning per share and dividend per share, Dividend policy
satisfy the objective of maximizing owner wealth. Thus, it is recommended that
financial managers should have information on the factors in the economy that
affects the behavior of investors in their purchase of stock before any public
reissue. Nigeria Stock Exchange should maintain its reliance on the force of
demand and supply alongside its daily biding system because it tends to give
the firms a fair assessment before the public in an unstable business
environment.
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
Dividend
Policy is one of the three major policy areas of financial management since
Nigeria stock companies came into existence. Dividend is commonly defined as
the distribution of earnings (past or present) in real assets among the
shareholders of the firm in proportion to their ownership. Dividend policy
connotes to the payout policy which managers’ purse in deciding the size and
pattern of cash distribution to shareholders overtime. Bhattacharya
(1999:P.241).Management primary goal is shareholders wealth maximization which
translates into maximizing the value of the company as measured by the price of
the company’s common stock. This goal can be achieved by giving the shareholder
a “fair” payment on their investments. However, the impact of firm’s dividend
policy on shareholders wealth is still unresolved.
According
to Bolt an (2000, p.249) Dividend policy is the guiding principle in
determining what proportion of earning should be paid out as dividend. Three
decades ago, Black fisher (1996) in his study on dividend wrote, “The harder we
look at the dividend picture the more. It seems like a puzzle with pieces that
just don’t fit together”. Why shareholders like dividends and why they reward
managers who pay regular increasing dividends is still unanswered. According to
Frankfurter, George and Wood bob (2003) Dividend policy has been kept as the
top ten puzzles in finance. The most pertinent question to be answered here is
that how much cash should firms give back to their shareholders? Which factors
determine or influence the type of dividend payout ratio? Does the payment of
dividend affect the market price of the shares of these companies? Should
corporation pay their shareholders through
Firms
adopt dividend policies that suit the stage of life cycle they are in. For
instance, high growth firms with larger cash flows and fewer projects tend to
pay more of their earnings out as dividends. The dividend policies of firms may
follow several interesting patterns adding further to the complexity of such
decisions. First, Dividends tend to lag behind earnings, that is, increases in
earnings are followed by increases in dividend and decreases in earning
sometimes by dividend cuts. Second, Dividend are “sticky” because firms are
typically reluctant to change dividends, in particular, firms avoid cutting
dividends even when earning drops. Thirdly, Dividends tends to follow a much
smoother path than do earnings. Finally, there are distinct differences in
dividend policy over the life cycle of a firm, resulting from change in growth
rates, cash flows and project investment in hand. Especially the companies that
are vulnerable to macroeconomic vicissitudes such as those in cyclical
industries are less likely to be tempted to set a relatively low maintainable
regular dividend so as to avoid the dreaded consequences of a reduced dividend
in a particularly bad year.
Shareholders
wealth is represented in the market price of the company’s common stock and a
drop in share prices occur because dividends have a signaling effect. According
to the signaling effect, managers have private and superior information. Such a
calculation, on the part of the management of the firm may lead to stable
dividend payout ratio. Accordingly, dividend policy can be used as a mechanism
to reduce agency cost. The payment of dividends reduces the discretionary funds
available to manager to seek financing in capital markets. This monitoring by
the external capital markets may encourage the managers to be more disciplined
and act in owners’ best interest....
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Item Type: Project Material | Attribute: 97 pages | Chapters: 1-5
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