Dividend Policy and Value of Quoted Firms in Nigeria: A Test of Miller and Modigliani Irrelevant Hypothesis
Keywords:
Dividend Policy, Value of Quoted Firms, Nigeria, Miller and Modigliani, Irrelevant Hypothesis.
Abstract
This study tested Miller and Modigliani dividend policy irrelevant hypothesis in Nigeria. The objective was to examine the validity of the irrelevant hypothesis. Tobins Q measure of market value was modeled as the function of dividend payout ratio, retention ratio, dividend per share and dividend yield. 20 firms were selected on the basis of availability of information necessary for conducting the study and the readiness of annual financial reports for the period of 10 years from 2008-2017. Cross sectional data was sourced from financial statement and annual reports of the firms. Based on the analysis of fixed and random effect results, random effect was used. The study revealed that 75 percent variation on the market value can be predicted by variation on independent variables in the regression model. The beta coefficient of the variables found that all the independent variables have positive and significant relationship with market value of the selected quoted firms. The study concludes that dividend policy is relevant as oppose to the irrelevant hypothesis of Miller and Modigliani. Its therefore recommend that managers should manage their dividend policies effectively since it is relevant and has significant effect on market value and optimal dividend policy which implies policy of trade-off between dividend payout and retain earnings should be well managed and investors should have adequate knowledge of dividend policy of quoted firms that will correspond with their investment objectives of avoid conflict in dividend policy.
References
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Abdullahi, A. (2014).Dividend policy and its impact on stock price: A study on commercial banks listed in Dhaka Stock Exchange. Global disclosure of Economics and Business, 3 (1), 9
Abor, J. (2008). Determinants of capital structure of Ghanaian firms. African Economic Research Consortium Biannual Workshop (AERC) Research paper 176, Nairobi, Kenya.
Abubakhar, S. (2012). Dividend payout ratio and share price movement of listed Non-service firms in Nigeria: Empirical study. www.abu.edu.ng/publications/2019
Adediran, S. A. And Alade, S.D. (2013). Dividend policy and corporate performance in Nigeria.American Journal of Social and Management Sciences, 4(2), 71-77.
Adediran,S.A., & Alade, S.D. (2013). Dividend policy and corporate performance in Nigeria.American Journal of Social and Management Sciences,4(2), 71-77.
Adefila, J.J., Oladipo, J.A., & Adeoti, J.O. (2004). The Effect of dividend policy on the market price of shares in Nigeria: Case study of fifteen quoted companies. International Journal of Accounting. University of Ado-Ekiti, 2 (1), 1-10
Adesina, K., Uwuigbe, U., Uwuigbe, O.R., Asiriuwa, O. & Oriabe, S. (2017). Dividend policy and share price valuation in Nigerian banks. EuroEconomica, 36(1), 1-1
Amadasu, D.E. (2011).Dividend is relevant: A restatement. African Research Review Journal, 5(4), 60-72
Anil, K., & Kapoor, S. (2008). Determinants of dividend payout ratios-A study of Indian information technology sector, The International Research Journal of Finance and Economics, 15(2), 63-71
Arshad, Z. Akram, Y, Amjad, M. & Usman, M. (2013). Ownership structure and dividend policy, interdisciplinary.Journal of Contemporary Research in Business, 5(5), 378-401.
Arslan, I., Farooq, A., & Ali Raja, S. (2014).The effect of dividend bubble on share price: Evidence from KSE-30 index. Research Journal of Finance and Accounting, 5(13), 83-87.
Baker, H.K., & Weigand, R. (2014). Corporate dividend policy revisited. Journal of Managerial Finance, 4(2), 126-144. doi.10.1108/MF-03-2014-0077.
Bougatef, K. (2014). How do dividend payments affect stock prices? The Case of Tunisian Firms. The Journal of Commerce, 3(2), 21-25.
Budagaga, A. (2017).Dividend payment and its impact on the value of firms listed on Istanbul Stock Exchange: A residual income approach. International Journal of Economics and Financial Issues, 7(2), 370-376. http.www.econjournals.com
Chirima, D.T. (2015). The Impact of dividend payments on stock prices in a developing economy: The case study of services firms listed on the Zimbabwe Stock Exchange. Case Studies Journal, 4(5), 126-133
Dabrowska, J. (2009). Does dividend policy follow the capital structure theory? Managing Global Transitions, 7(4), 367-382.
De-Angelo, H., & De-Angelo, L. (2006). The irrelevance of the MM dividend irrelevance theorem. Journal of Financial Economics, 79(2), 293-315.
DeAngelo, H., DeAngelo, L. & Skinner, D. (2004). Are dividends disappearing? Dividend Concentration and the Consolidation of Earnings.Journal of Financial Economics, 72, 425-456.
Dittmar, A. & Mahrt-Smith, J. (2007).Corporate governance and the value of cash holdings.Journal of Financial Economics, 83(3), 599-634.
Edward, A.B. (2014). The Impact of Dividend payment on share prices of some selected listed companies on the Ghana Stock Exchange. International Journal of Humanities and Social Sciences, 4(1), 179-190
Egbeonu, O.C., Edori, I.S., & Edori, D.S. (2016). Effect of dividend policy on the value of firms: Empirical study of quoted firms in Nigeria Stock Exchange. Research Journal of Finance and Accounting, 7(3), 17-24
Erasmus, P. & Scheepers, R. (2008). The relationship between entrepreneurial intensity and shareholder value creation, Managing Global Transitions, 6(3), 229-256.
Fama, E.F. & H. Babiak (1968). Dividend policy: An empirical model.Journal of American Statistical Association, 63, 1132-1161.
Hakeem, S.A., & Bambale, A.J. (2016).Mediating effect of liquidity on firm performance and dividend payout of listed manufacturing companies in Nigeria. Journal of Economics Development, Management, IT, Finance and Marketing, 8(1), 15-35.
Huda, F., & Farah, T. (2011). Determinants of dividend decision: A focus on banking sector in Bangladesh.International Research Journal of Finance and Economics, 77, 33-46
Husan-Aldin, N.A., Rafforty M, & Pillqar, R. (2010). Dividend policy: A Review of Theories and Empirical Evidence, International Bulletin of Business Administration, 9, 171-200.
Husan-Aldin, N.A., Rafforty M, and Pillqar, R. (2010). Dividend policy: A review of theories and empirical evidence, International Bulletin of Business Administration, 9, 171-200.
Iftikhar, A.B., Raja, N.J., & Sehran, K.N. (2017). Impact of dividend policy on stock prices of firms. International Scientific Journal Theoretical and Applied Science, 3(47), 32-37.
Ilaboya, O. J. & Aggreh, M. (2013). Dividend policy and share price volatility. Journal of Asian Development Studies, 2(2), 109-122.
Inyiama, O.I., & Ugah, H. (2015). Interactions between earnings and dividend payout rate in the oil and gas sector: Evidence from Nigeria (2004-2014). International Journal of Finance and Accounting, 4(5), 253-261
Iqbal, A., Ahmed, F., & Shafi, A.R. (2014). The effect of dividend bubble on share price:Evidence from KSE-30 index. Research Journal of Finance and Accounting, 5(13), 83-87
Iyiegbuniwe,W.I., & Ezike, J.E.(2018). Empirical analysis of the impact of current dividend policy on share price: Evidence from Nigeria. Unilag Journal of Business, 4(2),133-160
Walter, J.E. (1962). Dividend Policy: It’s influence on the value of the enterprise. Journal of Finance,18(2), 280-291.
Jensen, M.C.& Meckling, W.H. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure.Journal of Financial Economics, 3, 305-360.
Kanwal, I.K. (2012). Effects of dividends on stock prices: A case of Chemical and Pharmaceutical Industry of Pakistan. Journal of Management, 2(5), 141-148.www.cribfb.com/journal/index.php/amfbr American Finance & Banking Review
Khalid, H., Chijioke, O.M., & Aruoriwo, M.C. (2010).Dividend policy and share price volatility: United Kingdom evidence. Journal of Risk Finance, 12(1), 57-68
Khan, K.I. (2012). Effect of dividend on stock prices – A Case of Chemical and Pharmaceutical Industry of Pakistan, Management, 2(5),141-148.
Lintner, J. (1956). Distribution of income of corporations. American Economic Review, 46,.97-113.
Majanga, B.B. (2015). The dividend effect on stock price: An empirical analysis of Malawi listed companies. Accounting and Finance Research Journal,4(3), 99-105.
Mazur, K. (2007). The determinants of capital structure choice: Evidence from Polish Companies, International Advances in Economic Research, 13(4), 495-514.
McManus, I., Gwilym, O. & Thomas, S. (2006). Payment history, past returns and the performance of UK zero dividend stocks, Managerial Finance, 32(6), 518-536.
Research Journal of Finance and Accounting,5(6),176-189.
Mehta, A. (2012). An empirical analysis of determinants of dividend policy – evidence from UAE companies, Global Review of Accounting and Finance, 3(1), 18-31.
Miller, M., & Modigliani, F. (1961). Dividend policy, growth and the valuation of shares. Journal of Business, 34(4), 411-433.
Murekofu, T. M. and Ouma, O.P. (2012). The relationship between dividend payout and firm performance: A Study of Listed Companies in Kenya, European Scientific Journal, 8(9), 199-215.
Naser, K. Naseibah, R. & Rashood, W. (2013). Managers’ perception of dividend policy: Evidence from companies listed on Abu Dhabi Securities Exchange Issues in Business Management and Economics, 1(1), 1-12.
Ojeme, S., Mamidu, A.I., & Ojo, J.A., (2015).Dividend policy and shareholders’ wealth in Nigerian quoted banks. Canadian Social Science Journal, 11(1), 24-29.
Ordu, M.M., Enekwe, C.I., & Anyanwaokoro, M. (2014).Effect of dividend payment on the market price of shares: A study of quoted firms in Nigeria. IOSR Journal of Economics and Finance, 5(4), 49-62
Oyinlola, O.M., & Ajeigbe, K.B. (2014).The impact of dividend policy on stock prices of quoted firms in Nigerian. International Journal of Economics, Commerce and Management, 2(9), 1-17.
Ozuomba, C.N, Okaro, S.C., & Okoye P.V.C. (2013). Shareholders value and firm’s dividend policy: Evidence from public companies in Nigeria. Journal of Management Sciences, 2(12), 26-28.
Ozuomba, C.N., Okaro, S.C. and Okoye P.V.C. (2013). Shareholders’ value and firms’ dividend policy: Evidence from Public Companies in Nigeria. Research Journal of Management Sciences, 2(12), 26-28.
Preacher, K.J., & Kelly, K. (2011). Effect size measures for mediation models: Quantitative strategies for communicating indirect effects. Psychological Methods.16 (1), 93-115.
Ramadan, I. Z. (2013). Dividend policy and price volatility- Empirical Evidence from Jordan, International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(2), 15-22.
Shrikant, P., & Yuserrie, Z. (2015). Dividend policy decisions: Theoretical views and relevant issues. Reports on Economics and Finance, 1(1), 43-58.
Toby, A.J. (2014). Empirical test of the dividend policy irrelevance hypothesis in the Nigerian context. Research Journal of Finance & Accounting, 5(6), 167-178.
Udobi, P.I. (2016). An empirical analysis of Miller & Modigliani dividend policy irrelevance theory: Evidence from the Nigerian Stock Market. Unpublished Ph.D Thesis, Universityof Lagos.
Abdullahi, A. (2014).Dividend policy and its impact on stock price: A study on commercial banks listed in Dhaka Stock Exchange. Global disclosure of Economics and Business, 3 (1), 9
Abor, J. (2008). Determinants of capital structure of Ghanaian firms. African Economic Research Consortium Biannual Workshop (AERC) Research paper 176, Nairobi, Kenya.
Abubakhar, S. (2012). Dividend payout ratio and share price movement of listed Non-service firms in Nigeria: Empirical study. www.abu.edu.ng/publications/2019
Adediran, S. A. And Alade, S.D. (2013). Dividend policy and corporate performance in Nigeria.American Journal of Social and Management Sciences, 4(2), 71-77.
Adediran,S.A., & Alade, S.D. (2013). Dividend policy and corporate performance in Nigeria.American Journal of Social and Management Sciences,4(2), 71-77.
Adefila, J.J., Oladipo, J.A., & Adeoti, J.O. (2004). The Effect of dividend policy on the market price of shares in Nigeria: Case study of fifteen quoted companies. International Journal of Accounting. University of Ado-Ekiti, 2 (1), 1-10
Adesina, K., Uwuigbe, U., Uwuigbe, O.R., Asiriuwa, O. & Oriabe, S. (2017). Dividend policy and share price valuation in Nigerian banks. EuroEconomica, 36(1), 1-1
Amadasu, D.E. (2011).Dividend is relevant: A restatement. African Research Review Journal, 5(4), 60-72
Anil, K., & Kapoor, S. (2008). Determinants of dividend payout ratios-A study of Indian information technology sector, The International Research Journal of Finance and Economics, 15(2), 63-71
Arshad, Z. Akram, Y, Amjad, M. & Usman, M. (2013). Ownership structure and dividend policy, interdisciplinary.Journal of Contemporary Research in Business, 5(5), 378-401.
Arslan, I., Farooq, A., & Ali Raja, S. (2014).The effect of dividend bubble on share price: Evidence from KSE-30 index. Research Journal of Finance and Accounting, 5(13), 83-87.
Baker, H.K., & Weigand, R. (2014). Corporate dividend policy revisited. Journal of Managerial Finance, 4(2), 126-144. doi.10.1108/MF-03-2014-0077.
Bougatef, K. (2014). How do dividend payments affect stock prices? The Case of Tunisian Firms. The Journal of Commerce, 3(2), 21-25.
Budagaga, A. (2017).Dividend payment and its impact on the value of firms listed on Istanbul Stock Exchange: A residual income approach. International Journal of Economics and Financial Issues, 7(2), 370-376. http.www.econjournals.com
Chirima, D.T. (2015). The Impact of dividend payments on stock prices in a developing economy: The case study of services firms listed on the Zimbabwe Stock Exchange. Case Studies Journal, 4(5), 126-133
Dabrowska, J. (2009). Does dividend policy follow the capital structure theory? Managing Global Transitions, 7(4), 367-382.
De-Angelo, H., & De-Angelo, L. (2006). The irrelevance of the MM dividend irrelevance theorem. Journal of Financial Economics, 79(2), 293-315.
DeAngelo, H., DeAngelo, L. & Skinner, D. (2004). Are dividends disappearing? Dividend Concentration and the Consolidation of Earnings.Journal of Financial Economics, 72, 425-456.
Dittmar, A. & Mahrt-Smith, J. (2007).Corporate governance and the value of cash holdings.Journal of Financial Economics, 83(3), 599-634.
Edward, A.B. (2014). The Impact of Dividend payment on share prices of some selected listed companies on the Ghana Stock Exchange. International Journal of Humanities and Social Sciences, 4(1), 179-190
Egbeonu, O.C., Edori, I.S., & Edori, D.S. (2016). Effect of dividend policy on the value of firms: Empirical study of quoted firms in Nigeria Stock Exchange. Research Journal of Finance and Accounting, 7(3), 17-24
Erasmus, P. & Scheepers, R. (2008). The relationship between entrepreneurial intensity and shareholder value creation, Managing Global Transitions, 6(3), 229-256.
Fama, E.F. & H. Babiak (1968). Dividend policy: An empirical model.Journal of American Statistical Association, 63, 1132-1161.
Hakeem, S.A., & Bambale, A.J. (2016).Mediating effect of liquidity on firm performance and dividend payout of listed manufacturing companies in Nigeria. Journal of Economics Development, Management, IT, Finance and Marketing, 8(1), 15-35.
Huda, F., & Farah, T. (2011). Determinants of dividend decision: A focus on banking sector in Bangladesh.International Research Journal of Finance and Economics, 77, 33-46
Husan-Aldin, N.A., Rafforty M, & Pillqar, R. (2010). Dividend policy: A Review of Theories and Empirical Evidence, International Bulletin of Business Administration, 9, 171-200.
Husan-Aldin, N.A., Rafforty M, and Pillqar, R. (2010). Dividend policy: A review of theories and empirical evidence, International Bulletin of Business Administration, 9, 171-200.
Iftikhar, A.B., Raja, N.J., & Sehran, K.N. (2017). Impact of dividend policy on stock prices of firms. International Scientific Journal Theoretical and Applied Science, 3(47), 32-37.
Ilaboya, O. J. & Aggreh, M. (2013). Dividend policy and share price volatility. Journal of Asian Development Studies, 2(2), 109-122.
Inyiama, O.I., & Ugah, H. (2015). Interactions between earnings and dividend payout rate in the oil and gas sector: Evidence from Nigeria (2004-2014). International Journal of Finance and Accounting, 4(5), 253-261
Iqbal, A., Ahmed, F., & Shafi, A.R. (2014). The effect of dividend bubble on share price:Evidence from KSE-30 index. Research Journal of Finance and Accounting, 5(13), 83-87
Iyiegbuniwe,W.I., & Ezike, J.E.(2018). Empirical analysis of the impact of current dividend policy on share price: Evidence from Nigeria. Unilag Journal of Business, 4(2),133-160
Walter, J.E. (1962). Dividend Policy: It’s influence on the value of the enterprise. Journal of Finance,18(2), 280-291.
Jensen, M.C.& Meckling, W.H. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure.Journal of Financial Economics, 3, 305-360.
Kanwal, I.K. (2012). Effects of dividends on stock prices: A case of Chemical and Pharmaceutical Industry of Pakistan. Journal of Management, 2(5), 141-148.www.cribfb.com/journal/index.php/amfbr American Finance & Banking Review
Khalid, H., Chijioke, O.M., & Aruoriwo, M.C. (2010).Dividend policy and share price volatility: United Kingdom evidence. Journal of Risk Finance, 12(1), 57-68
Khan, K.I. (2012). Effect of dividend on stock prices – A Case of Chemical and Pharmaceutical Industry of Pakistan, Management, 2(5),141-148.
Lintner, J. (1956). Distribution of income of corporations. American Economic Review, 46,.97-113.
Majanga, B.B. (2015). The dividend effect on stock price: An empirical analysis of Malawi listed companies. Accounting and Finance Research Journal,4(3), 99-105.
Mazur, K. (2007). The determinants of capital structure choice: Evidence from Polish Companies, International Advances in Economic Research, 13(4), 495-514.
McManus, I., Gwilym, O. & Thomas, S. (2006). Payment history, past returns and the performance of UK zero dividend stocks, Managerial Finance, 32(6), 518-536.
Research Journal of Finance and Accounting,5(6),176-189.
Mehta, A. (2012). An empirical analysis of determinants of dividend policy – evidence from UAE companies, Global Review of Accounting and Finance, 3(1), 18-31.
Miller, M., & Modigliani, F. (1961). Dividend policy, growth and the valuation of shares. Journal of Business, 34(4), 411-433.
Murekofu, T. M. and Ouma, O.P. (2012). The relationship between dividend payout and firm performance: A Study of Listed Companies in Kenya, European Scientific Journal, 8(9), 199-215.
Naser, K. Naseibah, R. & Rashood, W. (2013). Managers’ perception of dividend policy: Evidence from companies listed on Abu Dhabi Securities Exchange Issues in Business Management and Economics, 1(1), 1-12.
Ojeme, S., Mamidu, A.I., & Ojo, J.A., (2015).Dividend policy and shareholders’ wealth in Nigerian quoted banks. Canadian Social Science Journal, 11(1), 24-29.
Ordu, M.M., Enekwe, C.I., & Anyanwaokoro, M. (2014).Effect of dividend payment on the market price of shares: A study of quoted firms in Nigeria. IOSR Journal of Economics and Finance, 5(4), 49-62
Oyinlola, O.M., & Ajeigbe, K.B. (2014).The impact of dividend policy on stock prices of quoted firms in Nigerian. International Journal of Economics, Commerce and Management, 2(9), 1-17.
Ozuomba, C.N, Okaro, S.C., & Okoye P.V.C. (2013). Shareholders value and firm’s dividend policy: Evidence from public companies in Nigeria. Journal of Management Sciences, 2(12), 26-28.
Ozuomba, C.N., Okaro, S.C. and Okoye P.V.C. (2013). Shareholders’ value and firms’ dividend policy: Evidence from Public Companies in Nigeria. Research Journal of Management Sciences, 2(12), 26-28.
Preacher, K.J., & Kelly, K. (2011). Effect size measures for mediation models: Quantitative strategies for communicating indirect effects. Psychological Methods.16 (1), 93-115.
Ramadan, I. Z. (2013). Dividend policy and price volatility- Empirical Evidence from Jordan, International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(2), 15-22.
Shrikant, P., & Yuserrie, Z. (2015). Dividend policy decisions: Theoretical views and relevant issues. Reports on Economics and Finance, 1(1), 43-58.
Toby, A.J. (2014). Empirical test of the dividend policy irrelevance hypothesis in the Nigerian context. Research Journal of Finance & Accounting, 5(6), 167-178.
Udobi, P.I. (2016). An empirical analysis of Miller & Modigliani dividend policy irrelevance theory: Evidence from the Nigerian Stock Market. Unpublished Ph.D Thesis, Universityof Lagos.
Published
2019-10-05
How to Cite
Lucky, L. A., & Onyinyechi, U. G. (2019). Dividend Policy and Value of Quoted Firms in Nigeria: A Test of Miller and Modigliani Irrelevant Hypothesis. Australian Finance & Banking Review, 3(2), 16-29. https://doi.org/10.46281/afbr.v3i2.404
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Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2019 Lucky Anyike Lucky,Uzokwe Grace Onyinyechi
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