Date of submission: November 22, 2021; date of acceptance: March 19, 2022.
* Contact information: nk.emekanwokeji@coou.edu.ng, Department of Accountan-
cy, Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Anambra State,
Nigeria, phone: +2348037409150; ORCID ID: https://orcid.org/0000-0002-3673-0422.
** Contact information: nangihlah@yahoo.co.uk, Department of Accountancy, Ken
Saro-Wiwa Polytechnic, Bori, Rivers State, Nigeria, phone: +2348037514250; ORCID ID:
https://orcid.org/0000-0001-8283-8883.
*** Contact information: chieduchristiandspg@gmail.com, Department of Accountan-
cy, Delta State Polytechnic, Ogwashi-Uku Delta State, Nigeria, phone: +234803760753;
ORCID ID: https://orcid.org/0000-0002-0950-9634.
**** Contact information: ebeleekwunife@gmail.com, Department of Accountancy,
Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, Anambra State, Ni-
geria, phone: +2348063498848; ORCID ID: https://orcid.org/0000-0003-4736-9940.
Copernican Journal of Finance & Accounting
e-ISSN 2300-3065
p-ISSN 2300-12402022, volume 11, issue 2
Emeka-Nwokeji, N.A., Nangih, E., Chiedu, C.O., & Ekwunife, E.N. (2022). Reaction of Share Prices to
Dividend Policy of Non-Financial Firms in Nigeria: A Panel Data Approach. Copernican Journal of
Finance & Accounting, 11(2), 31–49. http://dx.doi.org/10.12775/CJFA.2022.007
nKechi a. emeKa-nwoKeji*
Chukwuemeka Odumegwu Ojukwu University
efeeloo nanGih**
Ken Saro-Wiwa Polytechnic
christian o. chiedu***
Delta State Polytechnic
ebele n. eKwunife****
Chukwuemeka Odumegwu Ojukwu University
reaction of share prices to dividend policY
of non-financial firms in niGeria:
a panel data approach
Keywords: dividend payout ratio, dividend yield, market reaction, share price, firm
performance, capital market.
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife3232
J E L Classification: G3, G35, M41.
Abstract: The study analyzed how share prices react to dividend policies of non-finan-
cial firms in Nigeria. Data were collected from a sample of 31 non-financial firms using
an ex post facto research design from 2013 to 2019, resulting in 217 firm-specific ob-
servations. Descriptive statistics, diagnostic tests, and inferential statistics were used
as statistical tools of analysis. Results revealed that dividend per share positively and
significantly affects share prices of sampled firms. This finding affirms Gordon’s bird in
hand theory that share prices are affected by dividend. Dividend payout ratio, dividend
yield, firm, size and firm age do not have significant effect on share prices of sampled
firms. Consequently, the study recommends that firms should ensure that a good divi-
dend policy is implemented and that dividend per share policies are maintained, as this
has been empirically demonstrated to inf luence share prices.
Introduction Introduction
Every financial manager makes decisions that have impact on a company’s
worth. According to Omilabua, Alao and Situ (2018), these financial decisions,
which may have various implications (positive or otherwise) on the finances
of the organization, are broadly classified into three: Investment decisions
(that has to do with where to invest the business scarce resources to be able
to make good returns on investment); Financing decisions (which has to do
with where to raise funds for investment purposes, including the right debt-
equity mix to be employed in order to maximize shareholders’ value) and div-
idend decisions (which entails the decisions on how much profit should be
paid as dividends to the shareholders and the amount to be retained in the
business for expansion and growth). Accordingly, the ultimate goal of the
manager while making such decisions is always to maximize the firm val-
ue (Giang & Tuan, 2016). Little wonder Burhan and Rahmanti (2012) cited in
Aifuwa (2020) affirms that a firm’s ability to build value requires generating
sufficient profit while also meeting the needs of a diverse set of stakehold-
ers. Thus, Omilabua, Alao and Situ (2018) posit that dividend policy indicates
established benchmarks and guidelines which underpins management’s de-
cision regarding distributing Profit after Tax (PAT) to ordinary sharehold-
ers. Nangih (2021) argued that investors’ returns are measured from the
perspective of what the shareholders earn e.g. earnings per share, dividend
per share, earnings yield, price-earnings ratio, book value per share, market
share price per share and dividend yield. He noted that they are indicators
of what shareholders earn on their investments in the firm. Dividend policy
reAction of shAre Prices to dividend Policy… 3333
therefore has to do with taking decision involving paying cash dividends cur-
rently or paying an increasing dividend at a later date by the firm. According
to Islam (2018), a company’s dividend policy determines how much it will pay
out to shareholders, keeping in mind that the share valuation model empha-
sizes that the amount of dividend issued to shareholders has a significant im-
pact on the value of a share.
Many stakeholders, particularly investors (existing and potential), have in-
terests in stock returns or share price information. Little wonder Ashara, Eme-
ka-Nwokeji and Ozua (2020) noted that corporate investors want a high re-
turn from investment and are thus attracted by firms with management teams
whose dividend policies support the increase in firm value with an acceptable
risk. With share price information, an existing investor will be able to forecast
or estimate his earnings while potential investor is provided with more infor-
mation that will enhance their investment decisions. As a result, prospective
investors can use dividend policy as a source of information before committing
to an investment (Margono & Gantino, 2021).
Motivation for the StudyMotivation for the Study
Relationship between dividend policy and stock price movements is a promi-
nent issue in accounting and finance research since such knowledge can help
managers and stock market traders make better judgement. One of a compa-
ny’s management’s tasks is to define the dividend policy, which includes the
timing and amount of dividends to be paid. As a result, dividend policies in both
developed and developing countries have been a source of worldwide concern.
Prior studies have explored that dividend payment policy has a link with firm
performance. However, Academics are divided on the effects of dividend policy.
Some are of the opinion that when dividends are consistently paid, investors
are attracted to buy into the company, which improves the firm’s share price,
while others claim that the firm’s earnings are more important in determin-
ing the share prices of firms and not only dividends. Hence, findings of most of
the studies have led to some unresolved debates by researchers on this subject
matter. For instance, prior studies by Marfo-Yiadom and Agyei (2011), Adele-
gan (2003), Ajanthan (2013), Abiola (2014), among others, investigated the re-
lationship between dividend payout and the performance of firms. This study
therefore tries to resolves those controversies as well as contribute to knowl-
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife3434
edge on the subject matter. Accordingly, the study attempts to provide answers
to the following research questions:
I. to what extent does dividend payout affect market price per share of
firms in Nigeria?
II. to what extent does dividend yield impact on market price per share of
firms in Nigeria?
III. to what extent does dividend per share affect the market price per share
of listed firms in Nigeria?
Research Methodology and Research ProcessResearch Methodology and Research Process
This study adopts ex-post facto research design. The design is adopted because
the study investigates the independent variable’s potential effects on the de-
pendent variable using secondary data. Also since data for both share prices
and dividend policies of firms already exist in annual reports, an ex post fac-
to design enables the researcher to take data as-is and try to find plausible
connections or cause-and-effect relationships. Data used was gathered from
annual reports of non-financial companies listed on the Nigerian Stock Ex-
change. Thus, thirty-one non-financial firms were selected based on availabil-
ity of data for seven years’ period from 2013–2019 resulting in 217 firm yearly
observations.
The study used both descriptive and inferential statistics as tool of analy-
ses in addition to diagnostics tests to describe the characteristics of the vari-
ables, test the formulated hypotheses at .05 level of significance and confirm
regression assumptions. The analyses were performed using the panel regres-
sion technique with Hausman’s test employed to determine whether fixed ef-
fect (FE) or random effect (RE) analytical procedures is most appropriate.
Market Price per share (MPS) was used to measure share prices which is
the dependent variable of the study. This represent Closing Share Price as of
31st December for the years. Dividend policy which is the independent vari-
able measures the proportion of cash dividend a company pays to its ordinary
shareholders. Dividend policy are proxies as: Dividend Payout = (Div_pout Ra-
tio) is computed as cash dividend paid divided by profit after taxes; Dividend
yield = (Div_yild) Cash dividend yield in percentage computed as cash dividend
paid divided by Market capitalization and Dividend Per Share = (Dps) comput-
ed as Cash dividend paid divided by outstanding shares. Firm Size = (Fsiz) Size
reAction of shAre Prices to dividend Policy… 3535
measured as natural logarithm of Total Assets and Firm Age = (Firm_ag) which
is Number of years listed on the Nigerian Stock Exchange are control variables
employed in the study.
Conceptual, Theoretical and Empirical ReviewConceptual, Theoretical and Empirical Review
Share Price Share Price
Share price means the market price of a company’s share, be it a public (or pri-
vate) company. It is the market value per share at which a company’s share is
currently traded on the f loor of a stock exchange. It means the price at which
a company share can be purchased and sold in an arm’s length transaction.
Several factors can inf luence market value per share, including the firm’s
financial performance, the outlook of the industry or sector to which the com-
pany belongs, market demand and supply conditions, investor attitude, and
a range of other macroeconomic conditions.
Dividend Policy and DimensionsDividend Policy and Dimensions
The policy a corporation takes to achieve or organize its dividend pay-out to
shareholders is known as dividend policy. It is a financial choice made by a com-
pany to pay out a certain percentage of its earnings to its shareholders. The
board of directors decides how much of the company’s earnings should be giv-
en as dividends to shareholders and how much should be kept for expansion
and growth. This is critical since it defines the amount of dividends to be paid,
when they should be paid, and how they should be paid. According to Booth and
Cleary (2010), a dividend policy is a set of guidelines established by manage-
ment to help them decide how much of their revenues should be distributed and
how much should be kept in the firm for investment purposes. This study uses
the dividend pay-out, dividend yield and dividend per share as dimensions of
dividend policy and are discussed below:
I. Dividend payout
Dividend-payout ratio is a way of measuring the fraction of a compa-
ny’s earnings that are paid to investors in the form of dividends rather
than being re-invested in the company in a given time period (usually
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife3636
one year). It is a proportion of a company’s earnings that is paid to the
shareholders. According to Ubesie, Emejulu and Iyidiobi (2020), the div-
idend payout ratio shows the percentage of dividends an organization
pays out to its shareholders relative to its earnings per share. They fur-
ther opined that the payout ratio is used mainly to determine the capa-
bility of the company to continually pay dividends to its shareholders on
a consistent basis.
II. Dividend yield
Dividend yield can be described as the annual dividend paid per share
divided by market price per share. Labhane and Das (2015) describe
dividend yield as the annual dividend paid per share divided by market
price per share. Generally, investors mostly see companies that pay div-
idends consistently over a period of time as better investments. Thus,
should events occur which affect the share price, the amount of earlier
dividend together with the stability of the company can help to stabilize
the share price to a great extent.
III. Dividend per share
Some investors look to invest in shares of companies that will provide
reliable income through sizable and consistent dividends. Dividend per
share is the amount of total dividend divided by the number of issue
and ranking for dividend as at a particular date. Ubesie et al. (2020) de-
scribed dividend per share as the sum of declared dividends for every
ordinary share issued. They further opined that DPS is the amount of
dividends that a quoted company or publicly traded company pays as
dividends per share to their ordinary shareholders, during a reporting
period.
Theoretical FrameworkTheoretical Framework
This study is anchored on the “bird in hand” theory, which was propound-
ed by Gordon (1963) and Lintner (1962). According to their proposition, there
is a link between a company’s worth and its dividend payout. Dividends are
also thought to be less risky than capital appreciation since they are more pre-
dictable. In other words, the theory is based on the concept of dividend rele-
vance in determining the market value of a company’s stock. They proposed
that investors are rational individuals who are often risk averse and will al-
reAction of shAre Prices to dividend Policy… 3737
ways prefer to get a dividend today over expecting a financial gain in the fu-
ture, which they cannot be certain of. One of Gordon’s postulates, according
to Amidu (2007), is that investors prefer dividends to capital gains since pay-
outs are deemed less risky.
This theory is relevant to this research because, since dividends are seen
to be a determinant of the market price of shares, it is expected that managers
should set a good dividend policy in order to grow the share prices of their com-
panies, which will further attract more investors to invest in them.
Empirical ReviewEmpirical Review
In a recent study Ubesie et al. (2020) empirically analyzed the association be-
tween dividend policy and firm’s financial characteristics of consumer goods
companies in Nigeria. It made use of annual time series secondary data collect-
ed from annual report. Findings showed that Dividend per Share (DPS) relates
positively with the firm’s financial characteristics whereas there was a nega-
tive and insignificant relationship between profitability (measured by ROA and
ROE), and the Dividend Payout Ratio (DPR) of firms. A positive relationship was
maintained between DPR and EPS for the period. The study further observed
that the relationship between ROA and DPS was significant at 5% level.
Usman, Lestari and Sofyan (2021) examined the impact of dividend poli-
cy on share prices using 36 manufacturing companies listed on the Indonesia
Stock Exchange between 2014 and 2018. Dividend per share, retention ratio,
return on equity, dividend yield, and earnings per share are the independent
variables. The share prices are the dependent variable. Dividend per share has
a positive impact on share prices. The yield on dividends has negative impact
on stock prices. Share prices are unaffected by the retention ratio, return on
equity, or earnings per share.
Chiedu and Okonkwo (2020) used data from banks listed on the Nigerian
Stock Exchange from 2013 to 2018 to investigate the inf luence of dividend pol-
icy on shareholder wealth creation and business performance. Dividend policy
was examined in terms of dividends per share, while shareholder wealth gen-
eration was measured in terms of earnings per share and return on equity. The
results show a positive association between dividend policy, as measured by
dividend per share, and shareholders’ wealth creation, as measured by earn-
ings per share.
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife3838
Naz and Siddiqui (2020) investigated the effect of dividend policy on share
price volatility of firms from various industries in Pakistan listed on the Kara-
chi stock exchange from 2010 to 2019 using dividend yield, dividend payout,
and other control variables. The panel data is subjected to Fixed and Random
Effect Models. Payout ratio and price volatility are highly positively connected.
Share price volatility is inversely proportional to the company’s size and debt.
Dividend yield was revealed to be a positive and significant determinant factor
in inf luencing share price volatility in this study.
In a related study Hailin and Jingxu (2019) examined the effect of manda-
tory dividend policy on agency cost of Chinese firms following mandatory div-
idend policy introduced in 2011. The study employed panel data regression
model, intermediary utility model and difference-in-difference model (DID) in
examining the exogenous mandatory dividend impact on agency cost. Analyses
of the results indicate that mandatory dividend policy significantly inhibits the
agency cost of enterprises.
Haque, Jahiruddin and Mishu (2019) used data from 35 manufacturing
firms listed on the Dhaka Stock Exchange (DSE) to explore the impact of divi-
dend policy on stock price volatility. The dependent variable, price volatility,
is regressed against dividend yield and payout, as well as business size, earn-
ings volatility, and long-term debt, in this study. The results revealed a signifi-
cant inverse link between share price volatility and dividend yield as well as
firm size.
Usman and Olorunnisola (2019) studied the impacts of dividend policy on
performance of banks in Nigeria. Purposive random sampling method was em-
ployed to select seven (7) out of the sixteen (16) quoted deposit money banks in
Nigeria. Data was sourced from annual reports of the sampled banks for a pe-
riod of ten years from 2009–2018. The panel regression utilized in the study
revealed that dividend policy had a significant impact on bank corporate per-
formance in Nigeria.
Akram, Alrjoub and Alrabba (2018) investigated the nexus between div-
idend policy and stock price of listed firms in Amman. A total sample of
228 firms were used for the study. Data was collected from their annual re-
ports for the period from 2010 to 2016. The study employed descriptive sta-
tistics, Pearson correlation and panel regression analysis tools. The findings
showed that dividend policy had negative and significant inf luence on stock
price.
reAction of shAre Prices to dividend Policy… 3939
Fiiwe and Turakpe (2017) studied the effect of dividend Policy and firm
performance. The study employed the regression model as a tool for analysis
while the ex post facto design was used. The study selected companies list-
ed on the Nigerian stock exchange. Dividend policy was found to be related to
financial performance, and both were positively and statistically related for all
of the companies analyzed in the study.
Sharif, Purohit and Pillai (2015) used data from 41 firms from Bahrain stock
exchange to assess factors affecting share prices. Estimation approach is based
on FE and RE models, as well as pooled OLS regression with robust standard
errors. Both estimate models show a positive and substantial association be-
tween ROE, BVS, DPS, PE, and Log MCAP, implying that these variables have
a role in determining the market price of stocks. Dividend yield, on the other
hand, was found to have a negative association with MPS.
Enekwe, Nweze and Agu (2015) examined the nexus between dividend pay-
out ratio and performance evaluation measures such as (ROCE, ROA and ROE)
of quoted cement companies in Nigeria. Using data collected from their annu-
al reports from 2003 to 2014, the results of the analysis showed that the inde-
pendent variable (proxied by Dividend Payout Ratio) had positive effect on fi-
nancial performance.
Above empirical and theoretical review demonstrates that there is a grow-
ing literature on dividend policy and share prices accordingly. The null hypoth-
eses of this study is put forward as:
I. Dividend payout has no significant effect on market price per share of
firms in Nigeria.
II. Dividend yield cannot significantly affect market price per share of firms
in Nigeria.
III. Dividend per share has no significant effect on market price per share of
firms in Nigeria.
Model SpecificationModel Specification
This study adapted models of Hafeez, Shahbaz, Iftikhar and Butt (2018) and Us-
man and Olorunnisola (2019) in assessing reaction of share price to dividend
policies of firms in Nigeria. The models were used in a similar study in a devel-
oping economy and were modified to include the variables of this study which
is stated functionally and econometrically as:
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife4040
Share Price = f (Dividend Policy, Controls) (1)
MPSit = β0 + β1Div_poutit + β2 Div_yildit + β3Dpsit + Β4Fsizit +
+ β5Firm_agit + µ it (2)
Where:
MPS = Market Price per share; used to measure of share prices
Dividend policy = dividend pay-out ratio, dividend yield and dividend per
share
Div_pout = Dividend pay-out ratio
Div_yild = Dividend yield
Dps = Dividend per share
Fsiz = Firm Size
Firm_ag = Firm Age
β0 = Constant or intercept of regression equation β1, β2, β3, β4, β5 = Beta
coefficients of the regression equation
µ = error term to capture variations in the model
Empirical Results and Discussion of FindingsEmpirical Results and Discussion of Findings
Results of descriptive, diagnostics tests and inferential statistics are presented
in this section
Table 1. Descriptive Statistics
Div_yild = Dividend yield
Dps = Dividend per share
Fsiz = Firm Size
Firm_ag = Firm Age
β0 = Constant or intercept of regression equation β1, β2, β3, β4, β5 = Beta coefficients of the
regression equation
µ = error term to capture variations in the model
Empirical Results and Discussion of Findings
Results of descriptive, diagnostics tests and inferential statistics are presented in this section
Table 1. Descriptive Statistics
stats | mps div_pout div_yild dps fsiz_l~t firm_ag
---------+------------------------------------------------------------
mean | 67.07277 43.33742 3.709662 2.021896 7.340908 30.80645
sd | 218.8303 139.2547 4.958809 6.751149 .8493546 13.68729
max | 1556 1452.19 51.7242 61.8217 9.2409 55
min | .2 -935.6269 0 0 5.5066 4
skewness | 5.366192 3.65652 4.782661 6.528816 .1700388 -.6955676
kurtosis | 32.41457 62.74239 42.60347 51.3172 2.154552 2.128458
N | 217 217 217 217 217 217
----------------------------------------------------------------------
Source: extract from STATA Output.
Descriptive Statistics
In Table 1, descriptive statistics are used to describe the features of each variable used in the
study. Market Price per Share ranged between N1556 and N0.20 with average value of N0.67
with standard deviation of N218.83. This result indicates wide variation in the market price of
shares of selected firms. Investors are willing to pay as high as N1556 for some firms, and as
low as N0.20 for some firms. In the case of the explanatory variables, average dividend payout
ratio of sampled firms is N0.43 while the minimum value is (N935.62) and the maximum
value is N1452.19 during the period of the study. This result shows a significant difference
between the minimum and maximum values due to the fact that there are companies which did
not pay cash dividends at all during the period of the study. Average dividend yield of selected
non-financial firms is N3.71 with the minimum of N0.00 because some companies did not pay
cash dividend during the period under investigation with maximum of N51.72 and standard
S o u r c e : extract from STATA Output.
reAction of shAre Prices to dividend Policy… 4141
Descriptive StatisticsDescriptive Statistics
In Table 1, descriptive statistics are used to describe the features of each varia-
ble used in the study. Market Price per Share ranged between N1556 and N0.20
with average value of N0.67 with standard deviation of N218.83. This result in-
dicates wide variation in the market price of shares of selected firms. Investors
are willing to pay as high as N1556 for some firms, and as low as N0.20 for some
firms. In the case of the explanatory variables, average dividend payout ratio
of sampled firms is N0.43 while the minimum value is (N935.62) and the maxi-
mum value is N1452.19 during the period of the study. This result shows a sig-
nificant difference between the minimum and maximum values due to the fact
that there are companies which did not pay cash dividends at all during the pe-
riod of the study. Average dividend yield of selected non-financial firms is N3.71
with the minimum of N0.00 because some companies did not pay cash dividend
during the period under investigation with maximum of N51.72 and standard
deviation of N4.95. The result further reveals standard deviation, maximum,
minimum and mean values for dividend per share stood at 6.75, 61.82, 0 and
2.02 respectively. The maximum (9.24) and minimum (5.50) values of firm size
as assessed in terms of the log of total assets do not show a considerably wider
difference. This indicates that the majority of the companies in the study are of
similar size. The sampled firms’ average age is 30 years, with a standard devi-
ation of 13 years. According to the maximum and minimum values of the firm
age, the oldest firm in the sample is 55 years old, but some new firms that are
4 years old are also included in the study. Except for firm age, all of the variables
in the model are positively skewed, according to the skewness finding. Which
means that there are higher values above the sample mean. This finding is con-
sistent with the kurtosis result, which indicates that the data utilized in the
study is leptokurtic since three of the five variables have greater values than
the normal distribution’s value of three (3).
Normality TestNormality Test
Normality of data is often tested in order to ensure that the normality assump-
tion of regression is satisfied. Normality of data is usually checked to ensure that
the regression’s normality assumption is met. The result presented in table 2.
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife4242
Table 2. Normality Test
cash dividend during the period under investigation with maximum of N51.72 and standard
deviation of N4.95. The result further reveals standard deviation, maximum, minimum and
mean values for dividend per share stood at 6.75, 61.82, 0 and 2.02 respectively. The
maximum (9.24) and minimum (5.50) values of firm size as assessed in terms of the log of
total assets do not show a considerably wider difference. This indicates that the majority of the
companies in the study are of similar size. The sampled firms’ average age is 30 years, with a
standard deviation of 13 years. According to the maximum and minimum values of the firm
age, the oldest firm in the sample is 55 years old, but some new firms that are 4 years old are
also included in the study. Except for firm age, all of the variables in the model are positively
skewed, according to the skewness finding. Which means that there are higher values above
the sample mean. This finding is consistent with the kurtosis result, which indicates that the
data utilized in the study is leptokurtic since three of the five variables have greater values
than the normal distribution’s value of three (3).
Normality Test
Normality of data is often tested in order to ensure that the normality assumption of regression
is satisfied. Normality of data is usually checked to ensure that the regression’s normality
assumption is met. The result presented in table 2.
Table 2. Normality Test
Variable | Obs W V z Prob>z
-------------+--------------------------------------------------
mps | 217 0.29737 112.554 10.913 0.00000
div_pout | 217 0.45614 87.121 10.321 0.00000
div_yild | 217 0.67728 51.697 9.115 0.00000
dps | 217 0.31311 110.032 10.860 0.00000
fsiz_logasst | 217 0.97030 4.757 3.603 0.00016
firm_ag | 217 0.87139 20.603 6.990 0.00000
Source: extract from STATA Output.
The W statistic in the Shapiro-Walk test shown in table 2 is used to check the normality
assumption. W is positive and less than or equal to one. The normality of the data is indicated
by W being close to 1 (Henderson, 2006; Peng, 2004). As a result, the W tests used in the
study for dividend payout, dividend yield, firm size, and firm age are near 1, indicating that
S o u r c e : extract from STATA Output.
The W statistic in the Shapiro-Walk test shown in table 2 is used to check the
normality assumption. W is positive and less than or equal to one. The nor-
mality of the data is indicated by W being close to 1 (Henderson, 2006; Peng,
2004). As a result, the W tests used in the study for dividend payout, dividend
yield, firm size, and firm age are near 1, indicating that the data is normal.
This result indicates that the data used is normally distributed, that no outli-
ers exist in the data, and that the analyses and conclusions generated from it
are valid.
Table 3. Correlation Analysis
the data is normal. This result indicates that the data used is normally distributed, that no
outliers exist in the data, and that the analyses and conclusions generated from it are valid.
Shapiro-Walk test on table 2 checks the normal assumption by constructing W statistic. W is
positive and less than or equal to one. W being close to 1 indicate normality of the data
(Henderson, 2006; Peng, 2004). Thus, W test of 0.50, 0.68, 0.97 and 0.87, respectively for
dividend payout, dividend yield, firm size and firm age employed in the study are close to 1
indicating normality of the data. With this result, the study concludes that the data used are
normally distributed, that there is no outlier in the data and thus analyses and conclusion
therefrom are reliable for drawing conclusion.
Table 3. Correlation Analysis
| mps div_pout div_yild dps fsiz_l~t firm_ag
-------------+------------------------------------------------------
mps | 1.0000
|
div_pout | 0.0883 1.0000
| 0.1950
|
div_yild | -0.0367 0.5800 1.0000
| 0.5913 0.0000
|
dps | 0.8942 0.1605 0.0844 1.0000
| 0.0000 0.0180 0.2156
|
fsiz_logasst | 0.2971 0.1288 0.1909 0.3054 1.0000
| 0.0000 0.0583 0.0048 0.0000
|
firm_ag | 0.1064 0.0500 0.0543 0.0868 0.1184 1.0000
| 0.1182 0.4641 0.4262 0.2028 0.0819
Source: extract from STATA Output.
Pairwise Correlation Analysis
Correlation coefficients and their association between variables used in the model apart from
being used to test the strength of linear association shows the presence or otherwise of perfect
or exact relationship among the independent variables. Table 3 represents the correlation
amongst variables. It shows that dividend payout (0.09) and dividend per share (0.89), as well
as the two control variables of company size (0.29) and firm age (0.10), are positively related
to the market price per share. While the relationship between dividend per share, firm size and
market price per share is significant, the relationship between dividend payout and firm age is
insignificant. The positive relationship implies that increase in dividend payout, dividend per
S o u r c e : extract from STATA Output.
reAction of shAre Prices to dividend Policy… 4343
Shapiro-Walk test on table 2 checks the normal assumption by constructing
W statistic. W is positive and less than or equal to one. W being close to 1 indi-
cate normality of the data (Henderson, 2006; Peng, 2004). Thus, W test of 0.50,
0.68, 0.97 and 0.87, respectively for dividend payout, dividend yield, firm size
and firm age employed in the study are close to 1 indicating normality of the
data. With this result, the study concludes that the data used are normally dis-
tributed, that there is no outlier in the data and thus analyses and conclusion
therefrom are reliable for drawing conclusion.
Pairwise Correlation AnalysisPairwise Correlation Analysis
Correlation coefficients and their association between variables used in the
model apart from being used to test the strength of linear association shows
the presence or otherwise of perfect or exact relationship among the independ-
ent variables. Table 3 represents the correlation amongst variables. It shows
that dividend payout (0.09) and dividend per share (0.89), as well as the two
control variables of company size (0.29) and firm age (0.10), are positively re-
lated to the market price per share. While the relationship between dividend
per share, firm size and market price per share is significant, the relationship
between dividend payout and firm age is insignificant. The positive relation-
ship implies that increase in dividend payout, dividend per share, firm size and
age will invariably stimulate market price per share. Specifically, 1% increase
in dividend per share will lead to 89% increase in market price of share. How-
ever, earnings yield (-0.36) has a significant inverse relationship with a share
price of sampled firms. The correlation results between the independent vari-
ables of the study did not show any case of multi-collinearity since the highest
relationship between the independent variables is 58% which is below 70%. As
opined by Sharif, Purohit and Pillai (2015), if the relationship among two inde-
pendent variables is 70% and above, then it is a case for concern.
Regression AnalysisRegression Analysis
The Xtset command in STATA indicates that data was strongly balanced. Fixed
effect and random effect regressions were run. To establish which of the fixed
and random effect analytical methodologies is best for reaching a result, Haus-
man’s test was performed. The estimation based on random effects will be bet-
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife4444
ter if the P-value of the chi-square is bigger than 0.05 (5 percent) empirically.
Estimation based on fixed effects is recommended if the P-value is less than
0.05 (5%). The Hausman tests found a Chi2 of 1343.05 and a Prob > chi2 (Prob-
ability-value) of 0.0000, indicating that the fixed effect model is favored for this
investigation, and the result is reported and interpreted.
Table 4. Summary of Fixed-effect Regression
1
Table 4. Summary of Fixed-effect Regression
* Significant at 1%
Source: extract from STATA Output.
*Significant at 1%.
S o u r c e : extract from STATA Output.
The R-squared result of fixed-effect regression indicates that the dividend pol-
icy variables of Dividend payout, dividend yield, and Dividend Pay Share, as
well as the control variables of firm size (fsiz) and firm age (firm ag) used in the
study, together accounted for about 70% (R-squared 0.6899) of the systematic
variations in the market price of equity shares of non-financial firms on the Ni-
gerian Stock Exchange. The regression model used in this study has an F-value
of 9.13 and a P-value of 0.0000, which means it is statistically significant at the
1% level. This means that the regression model is appropriate. The coefficients
(p-value) for dividend payout, dividend yield, dividend per share, firm size
and firm age are -.0175(0.638), -1.500(0.226), 7.713(0.000) -1.150(0.972), and
-1.375(0.575) respectively. These coefficients of variation (β) which describe
the direction of variation, are negative for dividend payout (div pout), dividend
yield (did yild), control variables firm size (fsiz), and firm age (firm ag), but pos-
itive for dividend per share (div pout) (dps). Corresponding p-values for divi-
dend payout, dividend yield, firm size and firm age are all greater that 0.05(5%)
showing that these variables do not have significant effect on market price of
shares. Thus, the null hypotheses for dividend payout and dividend yield are ac-
cepted at 5% significance level and the alternative hypothesis is rejected. The
coefficients and p-value for dividend per share is 7.713(0.000). This indicates
reAction of shAre Prices to dividend Policy… 4545
that dividend per share has positive and significant effect on market price of
shares. The null hypothesis is rejected and alternative hypothesis accepted. Co-
efficients and p-values of the two control variables, firm size and firm age, were
negative and statistically not significant on market price of share.
Discussion of FindingsDiscussion of Findings
Findings of this study revealed that dividend payout and dividend yield of non-
financial firms included in the study do not have significant effect on market
price of shares. This indicates that increase in the market price of shares dur-
ing the period was not as a result of firms’ dividend payout and dividend yield.
It also shows that fraction of firms’ earnings that are paid in the form of divi-
dends do no motivate investors to pay for shares. This finding did not support
Gordon’s bird in hand theory that firm can employ dividend payment as a strat-
egy to inf luence market price. It shows that investors still sought for and are
paying for securities even when the dividend payout and yield is low. It also
indicates that investors can buy or sell shares base on availability or need for
fund and not necessary on whether dividend is paid by firms or not. This result-
ed in increase in market price of shares when even as there is decrease in divi-
dend payout and dividend yield. These findings support the previous research
results that dividend payout and dividend yield has negative and insignificant
effect of market price of shares (Ubesie et al., 2020; Sharif et al., 2015; Usman,
Lestari and Sofyan (2020). However, it contradicts the findings of Ugwu, Onye-
ka, and Okwa, (2020), Enekwe et al. (2015), Naz and Siddiqui (2020) Iftikhar,
Raja and Sehran (2017) and Habib, Kiani and Khan (2012) that dividend payout
and dividend yield have positive and significant effect on firm valuation and
share price volatility.
The analyses also showed that dividend per share has positive and signifi-
cant effect on market price of shares of sampled firms. This result indicates
that the amount that firms pay as dividend in relation to their ordinary shares
is considered by investors in evaluating and pricing various shares to invest
in. This outcome corroborates the findings of Ubesie et al. (2020) and Chiedu
and Okonkwo (2020) that dividend per share has positive and significant rela-
tionship with shareholders’ wealth creation and firm performance. The result,
however, contradicts the Miller and Modigliani (1961) theory of dividend ir-
relevance, which states that firms cannot use dividend payment as a strategy
N.A. Emeka-Nwokeji, E. Nangih, C.O. Chiedu, E.N. Ekwunife4646
to boost the value of their shares. The control variables of firm size and firm
age is negative and have no significant effect on market price of shares. Mean-
ing that size and age of a firm are not important variables that affect price of
shares. This indicates that investors don’t place much value on larger and older
firms. This negates the finding of Haque, Jahiruddin and Mishu (2019) that size
of a firm has significant impact on share price volatility but aligns with Habib
et al. (2012) that firm size has inverse relationship with share price volatility.
Conclusion and Recommendations Conclusion and Recommendations
Panel data approach and fixed effect regression model was employed to study
the effect of dividend policy on share prices of selected non-financial firms list-
ed under different sectors of Nigeria stock exchange starting from the period
preceding the adoption of International Financial Reporting Standards (IFRS),
2013 to 2019. The study provided empirical evidence that dividend per share
amongst other variables used has positive and significant effect on share price
while dividend payout and dividend yield is not significant in affecting share
price of selected firms. It can be concluded that firms’ dividend policy that re-
lates dividend to ordinary share is significant in inf luencing price that inves-
tors pay for shares. This conclusion agrees with Gordons (1963) bird in hand
theory that firm can employ dividend payment as a strategy to inf luence mar-
ket price. The study recommends that companies’ boards of directors and
management to ensure that a good dividend policy is implemented and that
dividend per share policies are maintained, as this has been empirically dem-
onstrated to inf luence share prices.
The research also suggests that whatever dividend ideology a company
chooses between Miller and Modigliani (1961) theory that dividend does not
affect the value of the company is not inf luenced by the way in which its profits
are split between dividends and retained earnings and Gordons’ (1963) bird in
hand theory that dividends affect the company’s value through an increase in
the demand for the company, firms should be consciously meticulous in their
thoughts on efficient approaches to maximizing the wealth of shareholders by
improving the firm’s value.
reAction of shAre Prices to dividend Policy… 4747
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