Dividend Policy
Topics: Dividend, Stock, Dividend yield / Pages: 19 (4729 words) / Published: Aug 14th, 2013

THE EFFECT OF DIVIDEND POLICY ON THE MARKET PRICE OF SHARES IN NIGERIA: CASE STUDY OF FIFTEEN QUOTED COMPANIES

By

Dr. J. J. Adefila Department of Accountancy, University of Maiduguri, Dr. J. A. Oladipo and J.O Adeoti, Both of the Department of Business Administration, University of Ilorin ABSTRACT The issue of how much a company should pay its stockholders, as dividend is one that has been of concern to managers for a long time. The optimal dividend policy of a firm may be defined as the best dividend pay out ratio the firm can adopt. But, what does “best” mean in this concept? Since the objective of the firm is to increase the wealth of its stockholders, the best dividend policy is the one that increases shareholders wealth by the greatest amount. It is therefore necessary, to understand the nature of the relationship between dividend and value of the firm. It is in the light of this that the study examines the possible effects of a firm’s dividend policy on the market price of its common stock. In so doing, the methodology adopted was Person’s Product Movement Correlation to evaluate the data collected from the fifteen studied companies. The study revealed among other things that, both internal and external factors affect dividend policy and hence a holistic approach to dividend policy becomes inevitable if a generally acceptable decision is to be taken. On this note the study recommended inter alias that policy makers should be well versed in the knowledge of those interactive forces within their environment which must be considered in order to arrive at a sustainable dividend policy for the generality of the interested parties. Introduction The optimal dividend policy of a firm depends on investor’s desire for capital gains as opposed to income, their willingness to forgo dividend now for future returns, and their perception of the risk associated with postponement of returns. However any normative approach to dividend policy intended to be operative



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