28940-31708-1-PB.pdf - Research Journal of Finance and Accounting ISSN 2222-1697(Paper ISSN 2222-2847(Online Vol.7 No.3 2016 www.iiste.org Effect of

28940-31708-1-PB.pdf - Research Journal of Finance and...

This preview shows page 1 - 2 out of 8 pages.

Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.3, 2016 17 Effect of Dividend Policy on the Value of Firms (Emperical Study of Quoted Firms in Nigeria Stock Exchange) Egbeonu Oliver C. , Edori Iniviei S. University of Port Harcourt Nigeria, Faculty of Management Science, Department of Finance and Banking Edori Daniel S. River State University of Science & Technology Nigeria, Faculty of Management Science, Department of Accountancy Abstract The study empirically investigated the effect of dividend policy on the value of firms as reflected on share holder’s wealth maximization. The data employed in the study was computed as weighted average of five year summary extracted from the audited financial reports of firms selected at random from Nigeria stock exchange; in performing the analysis, rigorous econometric tools such as unit root stationary test, multiple OLS regression, granger causality test, impulse response innovation and variance decomposition test were all employed with the aid of econometric statistical packages version 8. The result of the study revealed that dividend per share is significant and inversely related to share value of the firm while earning per share is both positive and significant to share value of firms; this result is similar to that of Baker, H.K. 1989. Based on this, the study concluded that earning per share is the predominant variable to influence the share value of firms. It is therefore recommended that finance managers should play an important role in the debt-equity mix in the balance sheet in order to magnify the earning per share as will be reflected in the wealth of shareholders. Keywords: earnings per share, dividend per share, internal rate of return, market value per share, impulse response, variance decomposition. INTRODUCTION Dividend policy is defined as a deliberate action of managers to distribute portion of earnings to shareholders in proportion of their holdings in the firm called dividend; the distribution of earnings to shareholders can be in form of cash dividend, bonus or script dividend, repurchased stock etc. the expected relationship between dividend paid out ratio and retention ratio is inversely related such that increase in retention ratio will bring about reduction in payout ratio of the firm, yet the duo work together for shareholder’s wealth maximization, it is practically impossible to formulate one without affecting the other. Dividend decision is extremely important to company’s valuation which practically translate to capital gain in share prices; shareholder’s wealth maximization is a paramount objective of a finance manager; which serve as return on investment outlay as reflected in the value of the firm. Return consist of two components: dividends and bullish stock (capital gain), despite the inverse relationship between dividend and earnings ratio, dividend and retained earnings have similar purpose towards maximizing shareholders interest (wealth); the unshared profit (retained earnings)
Image of page 1
Image of page 2

You've reached the end of your free preview.

Want to read all 8 pages?

  • Spring '19
  • BEM
  • Dividend, Dividend yield, ISSN, Research Journal of Finance and Accounting

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes