Effect Of Dividend Payment On Corporate Performance Nigerian Banks

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Effect Of Dividend Payment On Corporate Performance Nigerian Banks


Abstract


In this research work titled “Relationship between dividend payment and corporate performance of Access Banks Plc and Guarantee Trust Bank Plc”. The researcher examined the relationship between earning per share and dividend per share of selected Nigerian banks. Evaluates the relationship between firm size and dividend per share of Nigerian banks. Examined the relationship between return on asset and dividend per share of Nigerian banks. Evaluated the relationship between net assets value per share and dividend per share of Nigerian banks. The researcher made use of only secondary data from six years annual report and accounts of the two quoted bank (Access bank Plc and Guaranty Trust Bank Plc) listed on the Nigeria stock exchange were collected and regression analysis was utilized in the data analysis. The researcher found out that there is significant relationship between earning per share and dividend per share of selected Nigerian banks. It was also discovered that there is significant relationship between firm size and dividend per share of Nigerian banks.

The researcher equally found out that there is relationship between return on asset and dividend per share of Nigerian banks. The study shows that there is significant relationship between net assets value per share and dividend per share of Nigerian banks. Based on the findings the researcher recommends that Organizations should ensure that they have a good and robust dividend policy in place. This will enhance their profitability and attract investments to the organizations. Directors of corporate organizations should be made to update the records of shareholders including their next-of-kin to avoid a deliberate diversion or undue retention of unclaimed dividend warrants. Due procedures for the recognition and utilization of profit arising from investment of unclaimed dividend should be effected and properly accounted for.


Chapter One


Introduction

1.1 Background of the Study

Dividend is the return that accrues to shareholders as a result of the money invested in acquiring the stock of a given company (Eriki and Okafor 2002). While dividend policy on the other hand is concerned with division of net profit after taxes between payments to shareholders (ordinary shareholders) and retention for reinvestment on behalf of the shareholders (Kempner 1980). A difficult decision for both public and private limited companies is to determine the appropriate level of dividend to be paid to shareholders, and to decide whether or not to offer non-cash alternatives such as scrip dividends According to Davidson (1990). The existence of some share price reactions on dividend announcement prompts an analysis of the evidence for both shareholder clienteles and possible interaction of firms’ dividend policies with key activities such as internal investments. An aspect of the theory of dividend policy is part of a continuum of control allocations between managers and investors, and hence cross-sectional variations in dividend policy are driven by an underlying factor. The allocation of controls between the manager and investors is important not because of agency or private information problems, but because of its potentially divergent beliefs that can lead to a disagreement about the value of project available to the firm. This underlying factor is “Corporate Performance”. ‘Corporate performance is at the heart of the managerial function of an organization’ (Samuel 1989). Analysis of corporate performance is mainly concerned with the development of a modeling methodology to help in the diagnosis of past performance and thus provide a framework for evaluating the effect of changes in operating parameters as a guide for future planning. The performance of an Organization is measured by the choice of the management form of wealth to be held. If the performance of an organization is good there will be little or no disagreement between the management and the shareholders. (Anyigbo, 2008)

In evaluating Corporate Performance, the emphasis is on assessing the current behavior of the organization in respect to its efficiency and effectiveness. To measure overall corporate performance goals are set for each of these perspectives and specific measure for achieving such goals are determined. Each of these perspectives is critical and must be considered simultaneously, to achieve overall efficiency and effectiveness, and to succeed in the long-run. If any area is either over-emphasized or underemphasized, performance evaluation will become ‘unbalanced’. In this way, the aim of the concept is to establish a set of measures both financial and non-financial, through which, a company can control its activities and balance various measures to effectively track performance.

Modigliani and Miller (2011) observed that ‘The theoretical principles underlying the dividend policy and its impact on firms can be described either in terms of dividend irrelevance or dividend relevance theory’. Therefore, dividend policy is irrelevant for the cost of capital and the value of the firms in a world without taxes or transaction cost. This shows that when investors can create any income pattern by selling and buying shares, the expected return required to induce them to hold firm’s shares will be invariant to the way the firm packages its dividend payments and new issues of shares. It is to be observed that a firm’s assets, investments opportunities, expected future net cash flows and cost of capital are not affected by the choices of dividend policy.

Dividend payments and leverage policy are substitute mechanism for controlling the agency cost of free cash flow hence, improves performance. If a firm’s policy is to pay dividend each year end to shareholders, the level of activity in the organization will increase to obtain more income and have excess retained earnings to meet the standard set.

‘Dividend policy has the effect of destabilizing dividend as only a prolonged increase or decrease in profits will affect the average sufficiency to have any appreciable effect on the size of the distribution’. Since it is a conservative dividend policy-in the long run, only one half of all profits will be distributed and there will be substantial buildup of retained earnings. This will certainly reinforce further, the consistency of dividends, which could for a while, be maintained even in the face of actual losses. It may also relieve the company of having recourse to external sources of finance. The retention under this policy bears no relationship to the availability of profitable investment opportunities. The risk is that projects yielding less than the true cost of capital will be undertaken in order to absorb funds which would otherwise lie idle. Shareholders are entitled to a revenue stream of dividends. The value of the share corresponds to the present value of this stream of dividend payments.

So many factors affect the performance of corporate organizations and one of those factors is dividend policy. Dividend policy serves as a mechanism for control of a managerial opportunism. Empirical studies show that firms in developing Countries (e.g. Nigeria) smooth on their income and therefore, their dividends. The pattern of corporate dividend policies not only varies over time but also across countries, especially between developed, developing and emerging Capital markets. If the value of a company is the function of its dividend payments, dividend policy will affect directly the firm’s cost of capital. But is there any significant relationship between dividend policy and corporate performance in form of profitability investment and Earning per Share? This is the question this research study intends to answer.


1.2 Statement of the Problem

The goal of corporate entities is to maximize the value of shareholders’ investment in the firm. Managers pursue this goal through their investment, financing and dividend decisions. Investment decisions involve the selection of positive net present value projects. Financing decisions involve the selection of a capital structure that would minimize the cost of capital of the firm while dividend decisions of the firm determine the reward which investors and potential investors of the firm receive from their investment in the firm. Apart from the investment and financing decisions, managers need to decide, on regular basis, whether to pay out of the earning to shareholders, reducing the agency problem. The major factor that necessitated this research work is that previous studies has shown that the financial performance of Nigerian banks are very poor when compared with their counterpart in other developed countries, as a result of this the researcher tends to examine the relationship between financial performance measures and determinants of dividend policies in Nigeria Banking industry.


1.3 Objective of the Study

The aim of this research work is to evaluate the effect of dividend payment on corporate performance Nigerian Banks using Access bank Plc and Guaranty Trust Bank Plc listed on the Nigeria stock exchange. The specific objectives of this research work include the following;

  1. To examine the examine the relationship between earning per share and dividend per share of selected Nigerian banks.
  2. To evaluate the relationship between firm size and dividend per share of Nigerian banks.
  3. To examine the relationship between return on asset and dividend per share of Nigerian banks.
  4. To evaluate the relationship between net assets value per share and dividend per share of Nigerian banks.

1.4 Research Questions

The researcher developed the following research questions;

  1. Is there any relationship between earning per share and dividend per share of selected Nigerian banks?
  2. Is there any relationship between firm size and dividend per share of Nigerian banks?
  3. Is there any relationship between return on asset and dividend per share of Nigerian banks?
  4. Is there any relationship between net assets value per share and dividend per share of Nigerian banks

1.5 Research Hypotheses

HO1: There is no significant relationship between earning per share and dividend per share of selected Nigerian banks?

HO2: Is there any relationship between firm size and dividend per share of Nigerian banks?

HO3: Is there any relationship between return on asset and dividend per share of Nigerian banks?

HO4: Is there any relationship between net assets value per share and dividend per share of Nigerian banks


1.6 Significance of the Study

This research work will be of immense help to the researcher as it will help him to know more on the financial performance measures and determinants of dividend policies in Nigerian banking industry. It will also be of great importance to Nigerian banks as it will enrich their knowledge on the benefits and usefulness of dividend policies and other financial variables on their performance. This study will be of great importance to the students and other researchers since it will serve as a reference point for the upcoming researchers. Finally, this study will be of great importance to the general public as it will help the policy makers to enact laws that will guide dividend policies in the country, Nigeria.


1.7 Scope of the Study

In this research work titled “Relationship between dividend payment and corporate performance of Access Banks Plc and Guarantee Trust Bank Plc”. The researcher made use of only secondary data from ten years annual report and accounts of the two quoted bank (Access bank Plc and Guaranty Trust Bank Plc) listed on the Nigeria stock exchange from Central Bank


1.8 Limitation of the Study

During the course of this research, the following factors are proposed to be a limitation.

Financial Constraints:

Financial constraints tend to impede the researcher’s efficiency in locating relevant materials, literature, or information, as well as in data collection (internet, questionnaire, and interview).

Time Constraint

The researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research is reduced. However the researcher will give in their best to make this research a success.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

In this research work titled “Relationship between dividend payment and corporate performance of Access Banks Plc and Guarantee Trust Bank Plc”. The researcher examined the relationship between earning per share and dividend per share of selected Nigerian banks. Evaluates the relationship between firm size and dividend per share of Nigerian banks. Examined the relationship between return on asset and dividend per share of Nigerian banks. Evaluated the relationship between net assets value per share and dividend per share of Nigerian banks. The researcher made use of only secondary data from ten years annual report and accounts of the two quoted bank (Access bank Plc and Guaranty Trust Bank Plc) listed on the Nigeria stock exchange were collected and regression analysis was utilized in the data analysis.


5.2 Conclusion

Dividend policy is vital for the trendy of any business organization to display and thus it is one of the succeeding and notable instrument for evaluating the performance and existence of a company. Dividends perform a great value in comforting shareholders and it is extremely important because of its contrary effect on share values. Dividend policy remains one of the most important financial policies not only from the perspective of the company, but also from that of the shareholders, the consumers, employees, regulatory bodies and the government.

The researcher found out that there is significant relationship between earning per share and dividend per share of selected Nigerian banks. It was also discovered that there is significant relationship between firm size and dividend per share of Nigerian banks. The researcher equally found out that there is relationship between return on asset and dividend per share of Nigerian banks. The study shows that there is significant relationship between net assets value per share and dividend per share of Nigerian banks.


5.3 Recommendation

Based on the findings of this research study, the following recommendations are made;

  1. Organizations should ensure that they have good and robust policies in place. This will enhance their profitability and attract investments to the organizations.
  2. Directors of corporate organizations should be made to update the records of shareholders including their next-of-kin to avoid a deliberate diversion or undue retention of unclaimed dividend warrants. Due procedures for the recognition and utilization of profit arising from investment of unclaimed dividend should be effected and properly accounted for.
  3. A more stringent level condition should be established to compel directors to only invest in profitable ventures, report the utilization of retention earnings through notes to the accounts.

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