DIVIDEND POLICY AND MARKET VALUE OF QUOTED MANUFACTURING FIRMS IN NIGERIA

DIVIDEND POLICY AND MARKET VALUE OF QUOTED MANUFACTURING FIRMS IN NIGERIA

This research proposal is aimed at determining the dividend policy and market value of quoted manufacturing firms in Nigeria.

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CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Dividend policy and market value is a topic often researched in the field of finance and investment but, to date, it is still unclear if dividend policy affects market values or not. Lease, John, Kalay, Lowenstein, and Saring (2000) emphasized that dividend policy can be seen as the strategies laid down by management to ensure adequate and efficient dividend payout decisions, to its shareholders over a period of time. Dividend policy flexibility is usually a major determinant of the future investment in most quoted firms because the flexibility to invest in the future project has a significant relationship with the amount of money designated for current dividend payment, Therefore, most firms attach high importance to factors like managerial and behavioural environment, firms profitability ratios, and the willingness of the company to alter dividend policy in the future e.t.c before deciding the dividend profile of the company (Khan, 2012).The submission of most researches portray different conclusion on this particular topic. In fact according to a recent study conducted by (Rahaman, 2013; Zakaria,Muhammad and Zulkifi, 2012; Uwuigbe, et al, 2012; Zakaria and Tan, 2007;e.t.c); they established that researches relating to dividend distribution have always been controversial, with no agreeable conclusion among researchers.  Furthermore, this mixed opinion among the researcher is not only limited to dividend policy but also related to the study of market value. According to Remi (2005) the market value of a firm contributes immensely to the rating of the management in the performance of the company, Also, 6(1995, Samuelson (1995) and Working (1960) established that the concept of market value can be significantly linked with the Random walk theory, which emphasized that prices of shares always behave in a random or unstable manner.  Interestingly, their assertion was corroborated by Shiller (2000) when he suggested that market prices are usually uncertain in nature , however, he also stressed that the behaviour of market value can be substantially influenced by the fundamental of the firm. Market prices, though uncertain in nature; could also be determined by micro and macroeconomic factors(Christopher, Rufus and Jimoh, 2009). According to Gompers, Ishi and Metrick 2003) the major macro and microeconomic factors that can affect Market value are book value of the firm, the current dividend per share, earning per share, price –earning ratio and dividend yield. Furthermore, Moore and Beltz (2002) established that market prices of firms are usually affected by the Firm’s Beta Ratio i.e. the ratio of market value to book value but their assertion was challenged by Hordahl and Packer (2006) who posited that it is mainly the stochastic discount factors and the corresponding future payoffs that determine the stock prices. Still, on the subject of stock prices, Corwin (2003) reported that uncertainty and asymmetric information contribute significantly to the values attached to firms’ market prices. This research is significant to the body of knowledge because it was the first research to consider more than one manufacturing sector under a singular topic relating to dividend policy other researchers such as Michael Oyinlola, Omolola Oyinlola and Olusegun Adeniran(2014),  Zuriawati Zakaria, Joriah Muhammad and Abdul Hadi Zulkifli(2012) concentrated on only one sector. This study also considered a 10 – year period (2004 -2013) which could be argued as being the most current and thus, capable of reflecting the most recent changes in the stock market, then, the one conducted by Michael Oyinlola, Omolola Oyinlola and Olusegun Adeniran(2014) which was for just 7 years (2004 -2010) and that conducted by Zuriawati Zakaria, Joriah Muhammad and Abdul Hadi Zulkifli(2012) which was from 1999 -2006 (i.e 7 years). This paper primary objective is to establish if there are any significant relationships between dividend payment and market value, including earnings per share in the manufacturing sectors and it also examines the various controversies surrounding dividend policy and market value but specifically covers Dividend policy and market value synthesis in the manufacturing sector.  The research made use of a sample of 10(ten) quoted manufacturing companies, which are made up of four(4) sectors, these companies are listed on the Nigeria stock exchange for a period of 20 years (2004 -2013).

1.2   STATEMENT OF THE PROBLEM

Over the years, there has been conflicting goal regarding stakeholders’ wealth maximization and market valuation of the firm; many scholars believed that stakeholder’s interest and market value of the firm is reflected in the company’s earnings per share and capital gain in share price respectively. Scholars have also argued that companies’ fundamentals do not impact positively on the value of the firm; the major proponent of this argument is Modgiliani and Miller’s model which postulate that earnings are the predominant factor that affects the market value of a firm. However, conflicting interests of shareholders regarding dividend policy cannot be over-emphasize; every rational shareholder will consistently be required that higher dividend be paid regardless of the investment decisions of the firm. Finance managers are in dilemma in harmonizing both decisions (dividend and investment) since both decisions are very crucial to the worth of companies as shown in the growth of stakeholder’s worth. This research work seems to breach the gap by portraying the significant effect of dividend policy on share valuation

1.3   PURPOSE OF THE STUDY

The main purpose of this study is to determine the dividend policy and market value of quoted manufacturing firms in Nigeria. Thus, the specific objectives are to:

1. Examine the effect of Dividend per share on the market value of quoted manufacturing firms in Nigeria.
2. Assess the effect of Dividend yield on the market value of quoted manufacturing firms in Nigeria.
3. Ascertain the effect of Earnings per share on the market value of quoted manufacturing firms in Nigeria.

1.4   RESEARCH QUESTIONS

1. To what extent does Dividend per share affect the market value of quoted manufacturing firms in Nigeria.
2. To what extent does Dividend yield affect the market value of quoted manufacturing firms in Nigeria.
3. To what extent do Earnings per share affect the market value of quoted manufacturing firms in Nigeria.

1.5   RESEARCH HYPOTHESIS

The following hypotheses are formulated as a guide to this study. They are stated in null form viz:

Ho₁    There is no significant relationship between Dividend per share and the Market value

Ho₂    There is no significant relationship between Dividend yield and the Market value

Ho₃   There is no significant relationship between earnings per share and the Market value

1.6   SIGNIFICANCE OF THE STUDY

This study will add value to the operation and effectiveness of Dividend policy on the market value of quoted manufacturing firms in Nigeria.

The research work will bring about the relative significances of the company’s valuations and dividend decisions as reflected in the share holder’s wealth. The company’s valuation is reflected in price movement in the capital market; the dividend yield is in consideration of the project financing policy of the firm. Though, fundamentals of companies such as earnings per share, dividend per share, dividend yield among others; impact positively or negatively on the value of the firm as perceived by every rational investor in the stock market.

1.7   SCOPE AND LIMITATION OF THE STUDY 

This research is restricted to the empirical analysis of the available data on the book value of the firm, the current dividend per share, earning per share, price-earning ratio and dividend yield. within the review period (1997 – 2017). Hence, this study is out to provide a detailed analysis of dividend policy and market value of quoted manufacturing firms in Nigeria.

The limitations encountered in the course of this study include inadequate fund, delay inaccessibility to relevant materials/data, and also constrained by time.

1.8  ORGANIZATION OF THE STUDY

This study is structured into five (5) chapters.  Chapter one introduces and presents the background of the study.  Here, the researcher presents the background of the study, states the problem, purpose of the study, research question, research hypothesis, significance of the study, scope and limitation of the study and organization of the study; Chapter two (2) presents a review of relevant and related literature in Dividend policy and the market value of quoted manufacturing firms in Nigeria. The various theories of Dividend policy and the market value of quoted manufacturing firms in Nigeria were examined in detail; while Chapter (3) presents the methodological framework guiding the study and it presents a research design instrument for data collection, method of data analysis and interpretation of results.  The data used is presented and analyzed in Chapter four. Finally, chapter 5 is devoted to a discussion of findings, conclusions, and recommendations.