Faculty: Management Sciences
Department: Banking And Finance


Alajekwu, U. Bernard
Adigwe Patrick K.
Ibenta Steve. N. O.


Dividend policy has remained so controversial so much that "the harder we look at the dividends picture, the more it seems like a puzzle, with pieces that just do not fit together. The complexity of this puzzle may affect investors’ confidence when they cannot lay hands on reliable strategies to monitoring their investment. As lack of parameters for understanding dividend policy and firm performance nexus could hamper stock trading and efficiency of Nigerian stock market, this study has investigated the effect of dividend policy on the performance of firms quoted in Nigerian Stock Exchange. The aim was to help investors understand how dividend policies affect shareholder’s wealth, stock price volatility, stock liquidity and firm profitability of the financial and the non-financial services sub-sectors in Nigerian Stock Exchange. Four models were developed such that dividend payout ratio and dividend yield are the core dividend policy variables and were controlled by a selection of some firm specific characteristics including firm size, financial leverage, earnings volatility, financial crises, investment opportunities, growth opportunities, and firm liquidity. The study selected 60 quoted companies comprising 19 financial firms and 41 non-financial firms within a period of eleven (11) years from 2006 to 2016. The analyses carried out included pooled OLS regression, fixed effect, and random effect models while Chow and Hausman tests were used to determine the most suitable model for result interpretation. The findings showed that (1) none of the dividend policy variables (dividend payout and dividend yield) had significant contribution to shareholders’ wealth of the financial services firms; while dividend payout had a positive and significant effect on shareholders’ wealth in the non-financial services firms; (2) dividend policy variables (dividend payout and dividend yield) did not have a significant effect on stock market volatility of the financial services firms, however, dividend payout had a positive effect on stock market volatility for the non-financial services firms; (3) dividend payout was found to have positive but insignificant effect on stock liquidity in both the financial and non-financial services sub-sectors while dividend yield had a significant positive effect in both sectors; and (4) both the dividend payout and dividend yield did not have significant effect on the profitability of the financial and non-financial firms quoted on the Nigerian Stock Exchange. The study thus concluded that dividend distribution has mixed effects on performance of Nigerian firms and as a result, not an all-firm and all-season bound policy in Nigeria. Dividend policy should therefore be a professional practice that must be manipulated with some level of precision to influence firm performances. The study therefore recommended that investors in the financial services sub-sector should ignore dividend policies, in share pricing and evaluation of stock riskiness.