ABSTRACT
This study examined the impact of dividend yield on stock prices of Nigerian banks; the impact of earnings yield on stock prices of Nigeria banks and the impact of payout ratio on stock prices of Nigeria banks. The study adopted the ex-post-facto research design and panel data covering 5-year period 2006-2010 were collated from annual reports of banks and the Nigeria Stock Exchange daily official list. The Ordinary Least Square Regression Model was used to estimate the relationship between dividend yield, earnings yield, payout ratio and stock prices. Average of daily stock prices was adopted as the dependent variable, while the independent variables included dividend yield (DY), earnings yield (EY) and payout ratio (POR). The result emanating from this study revealed that dividend yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient of Dyield = -3.365; p-value = 0.035). Earnings yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient of Eyield = -0.331; p-value = 0.048) and dividend payout ratio had negative and non-significant impact on commercial banks’ stock prices in Nigeria (coefficient of Por = -1.411; p-value = 0.269). The study thus, revealed that the dividend yield, earnings yield and payout ratio are not factors that influences stock prices rather the bank size was found to have positive and significant impact on stock prices. The study therefore recommends among others that managers should act in the best interest of investor as to reduce the agency problem, thus complete information about the dividend polices of the firm should be provided.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The subject matter of dividend policy remains one of the most controversial issues in corporate finance. For a very long time now, financial economists have engaged in modeling and examining corporate dividend policy and earnings as they affect banks stock prices in Nigeria (Amidu, 2007). Black (1976) hinted that, “The harder we look at the dividend picture, it seems like a puzzle with pieces that don’t fit together”. In over thirty years since
then a vast amount of literature has been produced examining dividend policy.
Recently, however, Frankfurterc and Wood (2002) concluded in the same vein as Black and Scholes (1974) that the dividend “puzzle”, both as a share value-enhancing feature and as a matter of policy, is one of the most challenging topics of modern financial economics. Forty years of research have not been able to resolve it. Research no dividend policy and earnings
have shown not only that a general theory of dividend policy remains elusive, but also that corporate dividend practice varies over time, among firms and across countries. The patterns of corporate dividend policies not only vary over time but also across countries, especially between developed and emerging financial institutions. Glen, et al (1995) suggested that dividend policies in emerging markets differed from those in developed markets. They reported that dividend payout ratios in developing countries
were only about two thirds of that of developed countries. Different scholars have defined the term dividend policy differently. Hamid, et al (2012) defined dividend policy as the exchange between retained earning and paying out cash or issuing new shares to shareholders.
Booth and Cleary (2010) defined dividend policy as an exclusive decision by the management to decide what parentage of profit is distributed among the shareholders or what percentage of it retains to fulfill its internal needs. Nwude (2003:112) defined the term as the guiding principle for determining the portion of a company’s net profit after taxes to be paid out to the residual shareholders as dividend during a particular financial year.
Emekekwue (2005:393) defined dividend policy as the portion of firm earnings that will be paid out as dividend or held back as retained earnings. Huda and Farah (2011) pointed out.
