Academic journal article Canadian Social Science

Dividend Policy and Shareholders' Wealth in Nigerian Quoted Banks

Academic journal article Canadian Social Science

Dividend Policy and Shareholders' Wealth in Nigerian Quoted Banks

Article excerpt


In 2008, the global financial meltdown was partly responsible for the bearish movement of stock prices in the Nigerian Stock Exchange. This shows that more than a single factor could be responsible for the movement of prices of quoted stocks. Company performance and information about the introduction of new technologies are among the factors that have significantly affected the market value of shares in the past. Therefore, this paper examines empirically, the implications of adopted dividend policies on the value of shareholders' wealth and the extent to which dividend policy affects the market value of shares in quoted banks in Nigeria. The paper focuses on the situation before and after the financial meltdown. Correlation results of dividend paid in 2007-2010 and their corresponding market value showed that payment of dividend by quoted banks is relevant to their market value and the amount paid as dividend affects the value of their share. The paper also provides insight into the implications and effect's of policy decisions as it affects dividend payout and dividend retained for further growth on shareholders' wealth.

Key words: Dividend; Dividend policy; Shareholders' wealth; Quoted banks; Capital market

S. Ojeme[a]' ; A. I. Mamidulaj; J. A. Ojo1


The role of the capital market in the mobilization of medium and long-term capital and the distribution of this fund to firms that need them for the financing of their business activities is indispensable in the growth of any economy. However, when businesses become profitable, the issue of how to apply this profit between the need to retain it for further growth of the organization or distribute it as dividend arises. The quest to arrive at an optimal decision between these contending needs in the interest of shareholders has plunged stakeholders in businesses and the academia to seek the best policy for firms. Walter and Gordon (1959) led the group that argued that dividends were all that mattered in the determination of share prices. However, Modigliani and Miller (1961) argued against the claim that an active dividend policy should be pursued as a means of maximizing shareholders' wealth. They argued that in a tax-free world, shareholders are indifferent between dividends and capital gains, and the value of a company is determined solely by the earning power of its assets and investment. This research work therefore is to establish the true position in the Nigerian Stock Market using quoted banks as a focal point.


1.1 The Nigerian Capital Market

The origin of the Nigerian capital market date back to colonial times when the British government ruling at the time sought funds for running the local administration (Osaze, 2007). According to Osaze (2007), most of the revenue at the time was from agriculture, produce marketing, and solid mineral mining. These sources of funds were inadequate to meet its growing financial obligation, therefore it saw the need to raise fund from the public since revenue from tax and other payments was inadequate. This led to the establishment of the basic infrastructure for a financial system. According to Odife (2000) (as cited in Osaze, 2007), the first step in this direction was to secure the necessary finance for the development of this infrastructure by promulgating the 1946 10-year plan Local Loan Ordinance for the floatation of the first three hundred thousand pounds 8% government stock with its management vested on the Accountant-General. According to Osaze (2007), the Nigerian capital market has grown to a level where it recorded the following feat between 1946 and December, 2005:

* 1 Stock Exchange with 9 trading floors

* 1 commodity exchange

* 288 security listings

* 168 broker dealers/fund managers/portfolio managers

* 80 broker dealers/issuing houses

* 242 solicitors

* 85 reporting accountants

* 35 registrars

* 1 powerful Securities and Exchange Commission

* 1 investors 'Protection Fund

* 769 capital operators (stockbrokers and dealers, issuing houses, registrars, investment advisers etc)

* 1 Investment and Securities Tribunal

Babalola and Adegbite (1993) opine that using the following generally acceptable criteria of number of listed companies, number of listed securities, size of the market or market capitalization and all share indexes. …

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