CHAPTER ONE

Introduction

1.1 Background of the Study

Dividend policy is a financial decision that determines the amount of the

company’s earnings to be distributed to shareholders as dividend and the amount to

be retained by the company for investment purpose (Pandey, 2001). Retained

earnings are the most significant internal source of financing as firms rely on

retained earnings for the company’s expansion. From the shareholders point of

view, dividend is considered desirable as they tend to increase their current returns,

build their trust in the company, and likewise serve as good attraction to other

potential investors if the dividend yield and payout ratios are good. Pandey (2001)

pointed out that high payout policy means more current dividend and less retained

earnings, which may result in slower growth and perhaps lower market price per

share while low payout policy means low current dividends, more retained

earnings and higher capital gains and perhaps higher market price per share.

Hence, the objective of a dividend policy should be to maximize shareholder’s

return so that the value of investment is maximized.

Dividend policy decision is concerned about how much earnings that could be paid

as dividend by the firm and how much that could be retained. However, there have

been a lot of controversies whether dividend policy impacts market value or share
1
price of a firm. The question is does dividend policy matter? Almost everyone will

say ‘Yes’ considering various sites and examples of how dividend policy plays out

in the marketplace. Most standing researchers have argued that dividend is

irrelevant as they have no influence on the share price, given that the capital

markets are perfect (Miller and Modigliani 1961). Notwithstanding, some

resear1chers still held that capital markets are not perfect, therefore dividends do

matter. This puzzle has remained unsolved, as Okpara (2010) asserted that

corporate dividend policy has been a thing of concern to firms at large. They are

faced with the dilemma of declaring dividends and making provision for retained

earnings to make room for more investments and invariably increase the market

value of the firm.

Miller and Modigliani (1961) posited that dividend policy is irrelevant and argued

that payment of dividend increases the share price of a company, and this has the

counter effect of reducing the capital gain of the same company, thereby making

dividend payment ineffective (irrelevant). Likewise, Brennan (1970) and

Litzenberger and Ramaswamy (1982), in their tax effect hypothesis, are of the

view that if there is no tax for capital gains or if the capital gains is less than the

cash dividend tax, investors prefer companies that do not distribute cash dividends

and retain profits in the form of undistributed profits. The dividend irrelevant

2
hypothesis was further supported by Black and Scholes (1974) when they

submitted that each investor has his/her own implicit calculations regarding

preference between high cash dividend benefits or their retention according to the

circumstances he/she is experiencing such as the category into which he/she falls

and not necessarily dividend.

Lintner (1956) and Fama and Babiak (1968) contended that dividend policy

matters (relevant). They asserted that, prevailing earnings and previous dividends

determine the dividend payout ratios of companies in developed stock markets.

The dividend relevance theorists are of the view that dividend policy remains one

of the most important financial policies not only from the viewpoint of the

company, but also from that of the shareholders, the consumers, employees,

regulatory bodies, and the Government. Furthermore, they noted that dividend, is

basically the benefit of shareholders in return for their risk and investment is

determined by different factors in an organization such as financing limitations,

investment chances and choices, firm size, pressure from shareholders and

regulatory regimes.

There are however other dividend theories in literature opposing the dividend

relevance theory presented above. For example, Baker and Powel (1999) proposed

that capital gains are riskier than cash dividends and investors prefer companies

3
that distribute cash dividends to companies that hold profits to convert them into

capital gains. That is, a bird in hand is better than a sparrow on a tree. The

signaling effect theory supports Baker and Powel's (1999) theory when they opined

that the increase in the dividends' rate is an effective means of delivering

information to investors that the firm is viable. The Agency Cost theory of

dividend policy by researchers like Rozeff (1982) also supported this position

when it presents that shareholders can reduce the agency cost by encouraging debt

financing through high dividend payment and invariably increasing the market

value of the firm. The point is that the results are mixed which makes the issue

inconclusive. Interestingly, most previous studies have dealt with the dividends

policy concept but most of them have dealt with one type of dividend (the cash

dividend) (Miller and Modigliani, 1961), Partington, (1985) and do not make a

clear distinction between the dividend policy concept and dividend types (cash and

shares) (Salih, 2010).

1.2Statement of Research Problem

No consensus has been reached on whether dividend policy is relevant or irrelevant

to market value of firms, hence has remained controversy between finance

scholars. From various studies on the role dividend policy plays on the market

value of firms, most researchers (theorists) have argued that dividend is irrelevant

4
as they have no influence on the firms’ value (Miller and Modigliani 1961). While

others like Prof Walter followed by Sir Gordon argued that dividend policy is

relevant on firms’ market value. Shareholders desire dividend and managers pay

dividends to motivate investors. Every rational investor allocates fund in projects

that will reward or compensate on the risk and time in the use of capital by the

project. That is the minimum acceptable rate or return on funds committed to the

projects, because to most shareholders, dividend is the reward or compensation for

parting away with their fund and their aim of holding share is to earn dividend

(Okpara, 2012). Likewise, it is considered that high dividend payout attracts

investors; thus, dividend policy has a way of influencing the market value of the

firm. This study is pertinent to buttress, as well try to take a position on the

unresolved controversy on whether dividend policy enhances the market value of

the firms in Nigeria.

1.3 Objectives of the Study

The general objective of the study is to evaluate the relationship between dividend

policy and market value of firms in Nigeria. The specific objectives are to:

i. Examine the relationship between firms’ earnings and market value.

ii. Assess firms’ dividend per share and relationship with market value.

iii. Investigate the relationship between firms’ earnings per share and market value

5
1.4 Research Questions

To achieve the objectives of the study, the following research questions were

addressed:

i. To what extent do firms’ earnings affect market value of firms?

ii. What is the relationship between dividend per share and market value?

iii. To what extent do firms’ earnings per share affect the market value?

1.5 Statement of Hypotheses

The hypotheses of this study are stated in the null form as follows.

H01: Firms’ earnings do not have any significant impact on market value in Nigeria.

Ho2: Dividend per share does not have any significant impact on market value of

firms in Nigeria.

Ho3: Firms’ earnings per share are not significantly affected by the market value

in Nigeria.

1.6 Scope of the Study

This study limits itself to dividend policy on firm's market value in Nigeria. The

study covers ten quoted companies in Nigeria. Information on quoted companies is

obtainable from Firm's Annual Report and NSE statistical bulletin. The study used

data for the period of 2015-2019.

6
1.7 Significance of the Study

The study is meant to benefit various groups that are directly or indirectly linked to

the capital market. These groups are mainly policy makers, financial analysts,

investors, and researchers.

7
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Conceptual Review

2.1.1 The Concept of Dividend Policy

The concept of dividend is a well discussed and researched aspect of corporate

finance. But dividend policy remains a source of controversy despite years of

theoretical and empirical research. From Lintner (1959) to Gordon (1965) to Miller

and Modigliani (MM) (1961) to De Anglo and Skinner (1996) to De Anglo and De

Anglo (2004) and to date; researchers have not been able to resolve the dividend

policy and firm’s value controversy.

According to Black (1976), the more one looks at the dividend picture, the more it

seems like a picture, with pieces that do not just fit together. Dividend policy can

be described as a mirror in which the image of the dividend object does not

resemble the object. What makes dividend policy difficult to settle in theory and in

practice is that the demands of the investors operate in opposing directions.

According to Pandey (2001) the objective of dividend policy should be to

maximize shareholders return so that the value of his investment is maximized.

Hence firms adopt dividend policies that maximize their values and the

shareholders’ return consist of two components: dividend and capital gains.

8
Coming up with a dividend policy is challenging given the ‘payout ratio’ as an

underlying issue in dividend policy (i.e., calculated dividend as a percentage

earnings). High payout policy means more current dividend and less retained

earnings, which may result in slower growth and perhaps lower market price per

share while low payout policy means low current dividends, more retained

earnings and higher capital gains and perhaps higher market price per share.

Dividend policy is the policy of the firm on how much is retained in the Business

(Oxford Dictionary of Accounting 2005). Dividends are usually decided by the

board of directors and paid to the shareholders who are registered on the record

date. Dividend payment is justified on the ground that dividends are cash in hand

whereas capital gains are cash in the bank (Al-Malkawi, 2007; Al-Malkawi, 2008).

But dividends may be in form of property or stock which may be difficult to

realize. According to Lee (2019), dividend policy is meant to answer several

questions such as how much dividend should a company pay to shareholders?

What will be the impact of dividend policy on the company's market value? What

happens if the amount of dividend changes from year to year? Dividend policy

centers on decisions that are positive to the firm. Hence, dividend is one of the

most important policies not only to the firm but also to the shareholders,

customers, regulatory bodies, and the government (Uwuigbe, Jafarm & Ajayi,

9
2012). Dividend policy therefore concerns a wide clientele that are related to the

firm. Broyles (2003) simply defined cash dividends as payments by corporation to

its equity shareholders. Broyles further enlightened how corporate boards of

directors like paying dividends at a sustainable level, and most believe that

shareholders favor steady growth in dividend income. So, companies with highly

variable earnings tend to pay out lower proportion of earnings to shareholders.

More so, firms tend to adopt dividend policies that maximize their values. But

coming up with a dividend policy is challenging because investors prefer both

(Itungia & Kirago, 2012).

2.1.2 The Concept of Market Value

Market value represents the value of a company according to the stock market. It is

a generic term that represents the price an asset will get in the marketplace. Amollo

(2016) defined firm value as financial measure indicating the valuation by the

market for the entire firm. It is the total of claims from all the investors that is

secured and unsecured creditors and both preferred and common equality holders.

In the words of Pandey (2001), market value of an asset or security is the current

price at which the asset or security is being sold or bought in the market. Market

value per shares is expected to be higher than the book value per share for

10
profitable, growing firm. Several factors influence the market value per share, and

therefore, it shows wide fluctuations. What is important is the long-term trend in

the market value per share. In ideal situation, where the capital markets are

efficient and in equilibrium, market should be equal to present (or intrinsic) value

of a share.

Furthermore Singh (2010) defined market value as the equilibrium point on supply

and demand graph, where the demand and supply curves meet. Thus, market value

is decided based on the number of people who demand a commodity and the

number of commodities that the sellers are capable of selling.

The international valuation standards went ahead to define market value as the

estimated amount for which a property should exchange on the date of valuation

between a willing buyer and a willing seller in an arm's - length transaction after

proper marketing where in the parties had each acted knowledgeably, prudently

and without compulsion.

On a market with many similar properties and many well -informed actors, it

should be expected that the demand curve is almost horizontal (up to certain

transaction volume) at the price that is rational to pay. The actors on the market

know the market value of the property and no one would be willing to pay more

than this expected market value, when new information arrives, the demand curve

11
shifts, but still all (active) participants on the market would be willing to pay about

the same price.

2.2 Theoretical Review

The controversial nature of dividend and retention policies on firm’s value has

given rise to several theories with attempts to explain it. This is majorly

categorized under.

2.2.1 Dividend Relevance Theory

The relevance theory was developed by Walter and Gordon’s model. The theory

argues that the choice of dividend policy wholly affects the value of the firm

(Walter, 1963). It revealed the importance of the relationship between firm’s rate

of return and its cost of capital in determining the dividends policy that maximizes

the wealth of shareholders. Simply the theory informs that investors prefer higher

dividends to lower dividends at any given time assuming dividend level is held

constant at every other period. That means, if the dividends per share for each date

is held constant, the stock price will rise.

Gordon's model contends that dividend policy of the firm is relevant, and the

investors put a positive premium on current incomes/dividends. He argues that

12
dividend policy affects the value of shares even in a situation in which the return

on investment of a firm is equal to the required/capitalization rate (i.e., r = ke).

Walter's model is of the view that the investors are indifferent between dividends

and retention.

2.2.2 Dividend Irrelevant Theory

Modigliani and Miller advocated that dividend policy of a firm is irrelevant, as it

does not affect the wealth of the shareholders. Thus, dividends are irrelevant, and

the value of firm is independent of its dividend policy. The value depends on the

firm's earnings, which results from its investment policy. Once the investment

policy of a firm is formulated, dividend decisions are of no significance in

influencing value of firm (Miller & Modigliani 1961). Since Miller and Modigliani

developed the irrelevance theory, the controversy of dividend policy has lingered

till date. They argued that in a world of perfect capital market where market price

cannot be influenced, absence of personal (dividend) and corporate taxes (capital

gain) or equal tax rate, fixed investment policy, absence of transaction costs,

rationality of investors, there is no relationship between dividend policy and

market value. This theory argues that dividends policy does not have significant

effect on a firm’s value and is therefore irrelevant (Okpara, 2012).

13
2.3 Empirical Review

Finance and economic researchers have made frantic efforts to resolve the

lingering controversy on whether the firm’s choice of dividend and retention policy

affects or is irrelevant on its market value. Such as Gabriel (2011) that examined

the impact of dividend policy on firm value. The aim of the paper is to investigate

the impact of dividend policy on firm value. The sample consists of sixty-three

non-financial firms listed on the Bucharest Stock Exchange over the period 2001-

2011. Employing a fixed effect model, found that dividend pay-out ratio positively

influences firm value after controlling for other firm -specific variables.

Furthermore, leverage and firm size were found to have a positive effect on firm

value.

Ordu, Enekwe, Chinedu and Anyanwaokoro (2014) studied the effect of dividend

payment on the market prices of shares in Nigeria: A study of 17 quoted firms

using time series on dividend per share, dividend yield and dividend payout ratio

that ranges between 2000 and 2011. The model specification for the analysis of

data is ordinary least squares techniques applied as panel estimation. The results

suggest a positive effect between market price per share and dividend per share

confirming that a rise in dividend per share brings about an increase in the market

price per share of quoted firms; that dividend yield does not have a significant

positive effect on the market prices of shares of quoted firms in Nigeria; that there

14
exists a direct relationship between market prices per share and dividend payout

ratio of selected firms on the NSE.

Using panel analysis technique, Sew, Mohamed and Ahmad (2015) in their study

examined the relationship between dividend policy and share price volatility in the

Malaysian market. A sample of 319 companies from Kuala Lumpur stock

exchange was studies to find the relationship between stock price volatility and

dividend policy instruments using regression. Dividend yield and dividend payout

were found to be negatively related to share price volatility and were statistically

significant. Firm size and share price were negatively related. Positive and

statistically significant relationships between earning volatility and long-term debt

to price volatility were identified as hypothesized. However, there was no

significant relationship found between growth in assets and price volatility in the

Malaysian market.

Emeni and Ogbulu (2015) examined the relationship between dividend policy and

market value of firms in the financial services sector of the Nigerian economy. The

study used panel data constructed from the financial statements of firms listed on

the NSE for a period of 10 years, from 2002-2011. The ordinary least square

(OLS) statistical technique was used for the data analysis. The result of the study

shows that, cash dividend, -stock dividend and investment policy have a negative

15
but not significant relationship with the market value of firms in the financial

service sector of Nigeria, while earnings was found to have a positive and

insignificant relationship with market value (though significant at 10% level of

significance).

Oladipo (2015) examined the effect of dividend policy on the market price of share

in Nigeria, in so doing, the methodology adopted was person's product moment

correlation to evaluate the data collected from the fifteen studied companies. The

study revealed among other things that, both internal and external factors affect

dividend policy and hence a holistic approach to dividend policy becomes

inevitable if a generally acceptable decision is to be taken. On this note, the study

recommends inter alias that policy makers should be well versed in the knowledge

of those interactive forces within their environment, which must be considered to

arrive at a sustainable dividend policy for the generality of the interest parties.

Amollo (2016) aimed to discover the influence of dividend policy on firm value for

commercial banks in Nigeria using regression and correlation analysis. The result

found a strong positive correlation between dividend payout ratio and firm value

among commercial banks in Kenya.

16
Egbeonu, Edori and Edori, (2016) investigated the effect of dividend policy on the

value. 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. 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.

Budasgaga (2017) examined the impact of dividend payment on the value of firms

listed on the Istanbul Stock Exchange. The study adapted the residual income

approach based on Ohlson's (1995) valuation model. By testing different statistical

techniques, fixed effect is applied on panel data for 44 firms listed for the period of

2007 -2015. Inclusive, the findings show a positive significant relationship

between dividend payment and the value of firms. The results tend to support

agency cost rather than the signaling hypothesis explanation.

Ozuomba and Ezeabasili (2017) examined possible effects of dividend policy on

the value of firms with 10 quoted companies in Nigeria from 1995 to 2015. The

study made use of multiple regressions on the secondary data (market price per

17
share, earning per share and dividend) as a signaling model and proves that firm

value is greatly influenced by dividend policy.

Bamidele, Iko, Lugman and Olawele (2018). This study examined the effect of

dividend policy on market value of common stock of firms listed on. the Nigeria

Stock Exchange. The study is motivated by unsolved issue on dividend policy in

the financial management. Panel data set over the period of 2010 - 2014 was

obtained from the audited annual report and daily stock of the selected forms listed

in the NSE and subjected to panel analysis. The results of the study revealed that

payout ratio (POR) has positive effect on stock price, though not significant while

earnings per share (EPS) and size has a significant positive relationship with stock

price though significant while, market to book value (MBV) has an insignificant

positive effect on stock price.

Odum, Odum, Omeziri and Egbunike (2019) evaluated impact of dividend payout

ratio on the value of firm, with listed firms on the NSE from 2002-2016. The study

made use of panel ordinary least square regression techniques. The result of the

study revealed that profitability ratio and leverage ratio positively and significantly

impact on the value of the firm.

Ejem and Ogbonna (2019) investigated dividend policy and firms’ value in

Nigeria. This study made use of 24 quoted companies selected from 10 sectors of

Nigerian economy from firm’s annual reports and accounts for the period of 2012

18
to 2017. The results of the descriptive statistics found that few numbers of

companies are paying high dividends, while the rest companies are paying very

low or no dividends. The researchers fitted the three conventional models of panel

data analysis and found earnings exerting positive and significant influence on the

firms’ value, whereas dividend per share insignificantly impacts firms’ value.

Likelihood ratio and Hausman tests rejected the null hypothesis that unobserved

variables have no significant relationship with observed variables.

2.4 Gap of the Study

Dividend policy decision has generated endless controversy on whether it enhances

market value or not. As such various studies have been done using samples from

quoted firms. Likewise different analysis techniques employed such as multiple

regression, ordinary least square and fixed effect (which is just one out of the

variants of panel data analysis technique). Yet on this, plethora of reviewed finance

and economics literatures are yet to agree on the matter. There are rarely studies

that employed the complete variants of panel data analysis techniques (pool

regression, fixed effect, and random effect) to determine the relationship of the

variables (dividend per share, earnings, and earnings per share) with firms’ market

value in Nigeria.

19
It therefore creates a lacuna for a more recent empirical investigation to be tested

in Nigeria, hence the need of this study “Dividend Policy and Market Value

Relations of Quoted firms in Nigeria, to add to the empirical literature as well as

take a position on either the relevance school or irrelevant school, i.e., whether

dividend policy variables enhance market value or not.

CHAPTERN THREE

METHODOLOGY

3.1 Research Design

The design for the study is cross sectional time series quasi experimental design

3.1 Sources of Data

The researcher employed secondary data of 20 quoted firms from ten sectors of the

Nigeria economy for the period 2015 to 2019. The four basic variables in the data

are earnings, earnings per share, dividend per share and market value. Data for

Market value (proxied by total asset/returns on asset), data for earnings (proxied by

profit before interest) and data for earnings per share were obtained from the

20
Nigeria stock exchange statistical bulletin while data for dividend per share was

got from firms’ Annual Reports and Accounting for the periods.

3.2 Techniques for Data Analysis

The study employed panel data analysis with its variances; pool regression, fixed

and random effects. To compare the pooled regression model with the fixed

effects, model the likelihood ratio was used while Hausman test was used to

compare random effect model with the fixed test model. The null hypothesis favors

the pooled model i.e., unobserved sectioral differences are not significant. Also,

the null hypothesis favors the random effects model i.e., Z i are uncorrelated with

the explanatory variables.

3.3 Model Specification

Functional form.

Market Value = f (dividend policy) (1)

Market Value = f (dividend per share, earnings, earnings per share) (2)

Market value = f (DPS, ENS, EPS) (3)

Explicit form.

Pool regression model approach.

MKTVALit= α0 + α1DPSit + α2ENSit + EPSit+ εit (4)

21
Fixed Effect approach.

MKTVALit= (α + Zi) + α1DPSit + α2ENSit + EPSit + εit (5)

= αi + α1DPSit + α2ENSit + EPSit + εit (6)

Random Effect approach.

MKTVALit = α0 + α1DPSit + α2ENSit+ EPSit + (Zi+εit3) (7)

= α0 + α1DPSit + α2ENSit+ EPSit + µit4 (8)

Where, α = Intercept,

MKTVAL = Market value of the firms

DPS = Firms Dividend per share

ENS = Firms earnings

EPS = Firms earnings per share

εit, µit = error terms.

22
3.4 Operational Function (Apriori Expectation)

α1, α2>0, <0, are coefficient of DPS and ENS, recognizing both dividend relevance

and irrelevance theories. It is expected that earnings and DPS will either positively

or negatively influence the firms’ market value.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 Presentation of Data and Analysis

4.1. 1 Test of Long Run Equilibrium among Variables

Table 4.1 below showed the test of cointegration among variables of dividend

policy and firm’s market value using Kao Residual Cointegration. The table

revealed that the Kao ‘t ‘statistic recorded a coefficient of 5.128522 with P-value

of 0.0000. This shows rejection of the null hypothesis of no cointegration among

the variables, and it is sufficient evidence that long run equilibrium relationship

exists between variables of dividend policy and firm’s market value.

Table 4.1 Kao Residual Cointegration

Table 4.1 Kao Residual Cointegration

23
 t-Statistic Prob.
ADF 5.128522 0.0000
Residual variance 7.24E+16
HAC variance 1.15E+17
Source: researcher’s computation

4.1.2 Estimation of Models using the Variant of Panel Data Analysis

Table 4.2 below showed the summary of results of the various panel data analysis

methods. The pool regression fixed and random effects coefficients and P-values in

bracket are: ENS 1.000496 (0.0000), 0.130527 (0.0223) and 0.428499(0.0000)

indicating positive and significant impacts on firm’s value, while DPS-

0.135397(0.0062), -0.036084(0.2693) and-0.057702 (0.0596) showed all negative

and insignificant while that of pool is significant. The values for EPS are -

0.028896(0.6450), -0.013003 (0.6493) and -0.015098 (0.5905) showed that EPS

insignificantly exerts firm’s market value. Also, the constant values of 3.489648

(0.0000), 16.19447 (0.0000) and 11.79053(0.0000) respectively indicated positive

and significant entrance into the firm’s value. The Durbin Watson of 0.992225,

1.58128 and0.940113 showed the presence of autocorrelation for pool and random

effect except fixed. The models were fitted at R-Square 0.84 (84%), 0.98 (98%)

and 0.33 (33%) respectively. The Adjusted R-squared coefficients of 0.836773,

0.980098 and 0.314120 implying that dividend policy explains about 83%, 98%

and 31% of the variation in market value in Nigeria. The F-statistic of 144.5404

24
(0.0000), 180.8522(0.0000) and13.82348 (0.000) showed overall significance of

the various models.

25
Table 4.2 Panel Regression Results

Variables Pool Regression Fixed Effects Random Effects

3.489648(0.0000 16.19447(0.0000 11.79053(0.0000
Constant ) ) )
1.000496(0.0000 0.130527(0.0223 0.428499(0.0000
ENS ) ) )
- - -
0.028896(0.6450 0.013003(0.6493 0.015098(0.5905
EPS ) ) )
- - -
0.135397(0.0062 0.036084(0.2693 0.057702(0.0596
DPS ) ) )
R-Square 0.842603 0.985547 0.338616
AdjR-
Square 0.836773 0.980098 0.314120
144.5404(0.0000 180.8522(0.0000 13.82348(0.0000
F-Statistic ) ) )
Durbin-
Watson 0.992225 1.581281 0.940113
Source: researcher’s computation*Probability values are inside bracket
4.1.3 Comparing Pool Regression, Fixed Effects and Random Effect

Table 4.3 below showed whether unobserved variables have significant influence

on market value in Nigeria. The acceptance of null hypothesis favors pool

regression which states; that the unobserved effects are insignificant while

rejection of null hypothesis favors fixed effect that the unobserved and estimated

factors are correlated. For the Hausman, acceptance of null hypothesis favors

random effect that, correlation between observed and unobserved factors is

insignificant. In table 4.3 both the Likelihood Ratio and Hausman tests rejected the

null hypothesis that unobserved variables have no significant relationship with

26
observed variables, which would have favored both pool regression and random

assertions. Therefore, the two tests favored fixed effect that unobserved variables

are important explanatory variable for firm’s value.

Table 4.3 Model specification test

Specification test Statistics

Likelihood test 30.165575 (0.0000)
Hausman test 95.550762 (0.0000)
Source: researcher’s computation*Probability values are inside bracket

Having observed the factors effect, the researcher proceeded to checking the

unobserved cross effects of the firms as shown in table 4.4 below.

27
Table 4.4 The unobserved firms’ cross effects

COMPANY SECTOR EFFECT

Okomu Oil Agriculture
1 Palm -0.790188
2 Prescoplc Agriculture -0.118038
3 UAC of Nigeria Conglomerate 0.633869
Construction/
4 Julius Berger R.estate 1.415641
Nigerian Consumer
5 Breweries goods 1.569055
Vitafoam Consumer
6 Nigeria goods -1.450202
Financial
7 Zenith Bank services 3.980235
Financial
8 Access Bank services 3.781870
GlaxoSmithklin Healthcare
9 e -0.828198
FidsonHelathcar Healthcare
10 e -1.196972
Fidson Healthcare
11 Healthcare -1.120942
Industrial
12 Lafarge Africa goods 1.784920
Industrial
13 Berger Paints goods -2.373206
Aluminum Natural
14 Extrusion resources -2.796094
Natural
15 B.O.C. Gases resources -2.474105
16 Mobil Oil Oil and gas 0.018723
17 Total Oil Oil and gas 0.549937
Transcorp Services
18 Hotels -0.027549
19 NAHCO Services -1.395106
Consumer
20 Guinness goods 0.850303
AIICO Insurance
21 Insurance 0.240733
28
Source: researcher’s computation

4.2 Test of Hypotheses

H01: Firms’ earnings do not have any significant impact on market value in

Nigeria.

The results of the panel regression on tables 4.2 showed that ENS on pool

regression, fixed and random effect are 1.000496(0.0000), 0.130527(0.0223) and

0.428499(0.0000), this means that earnings exert positive and significant impact on

firms’ market value. We therefore reject the null hypothesis that Firms’ earnings

do not have any significant impact on market value in Nigeria. The implication of

this is that earnings are a function of market value. In other words, the higher the

earnings of a firm the higher its market value in Nigeria.

Ho2: Dividend per share does not have any significant impact on market

value of firms in Nigeria.

The coefficient for DPS on table 4.2 showed a figure of -0.135397(0.0062), -

0.036084(0.2693) and -0.057702(0.0596) which are all negative and insignificant,

except that of pool regression that is significant. This implies that Dividend per

share does not have any significant impact on market value of firms in Nigeria,

29
while for pool regression dividend per share impacts market value though negative.

In other words, dividend payment does not influence the market value of firms.

Ho3: Firms’ earnings per share do not have significant effect on the market

value in Nigeria.

The result on table 4.2 above indicated that EPS has a coefficient of -

0.028896(0.6450), -0.013003(0.6493) and -0.015098(0.5905) for the various

model. This shows that they are all negative and insignificant; it implies that

Firms’ earnings per share do not have significant effect on market value in Nigeria.

The researcher, therefore, have sufficient evidence not to reject the null hypothesis

and affirm that earnings per share has no significant effect on firm’s market value,

4.3 Discussion of Findings

This study on Dividend Policy and Firms’ Market Value Relations employed 20

cross sectional units of firms’ annual reports and accounts from 2015 to 2019. The

panel data models as fitted, found that earnings (ENS) exerted positive and

significant influence on the market value, whereas DPS and EPS insignificantly

impact market value. These results corroborate the study of Ejem and Ogbonna

(2019) and the postulation of Miller and Modigliani (1961) that the value of firms’
30
is determined solely by the earning power or potentials of the firm’s assets or its

investment policy and that the way the earning stream is divided between

dividends and retained earnings does not affect the firms value. That means,

dividend policy is irrelevant to market value and under a perfect market condition,

earnings influences market value which is a function of investment policy.

However, it contradicted the findings of Emeni and Ogbulu (2015) whose findings

is an inverse relationship between earnings and market value.

It was also found that few numbers of companies especially from the financial

sector are paying high dividends. Also, that leverage firms are likely to pay lower

dividends in Nigeria. While the rest companies are paying very low or no dividend.

These results corroborate the findings of Ordu, Enekwe, Chinedu and

Anyanwaokoro (2014), Budasgaga (2017), Ozuomba and Ezeabasili (2017). The

results suggest a positive effect between market value and dividend per share

confirming that a rise in dividend per share brings about an increase in the market

price per share of quoted firms.

Furthermore, the researcher discovered that unobserved variables are important

explanatory factors that lead to differences in firms’ value (performance) as

confirmed by favorable output for fixed effect model. That shows that unobserved

factors inherent in a firm account for its unique performances in the industry. For

31
instance, firms’ discretionary policies such as management styles can make them

perform superior to its competitors in the same company. Again, the coefficient

and probability values of the autonomous components (C) for the various models

(3.489648(0.0000), 16.19447(0.0000) and 11.79053(0.0000) shows significance,

suggesting that there are other factors account for enhancement of firms’ value if

efficiently and effectively employed.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary and Conclusion

This study examined dividend policy and market value, evidence from Nigeria.

Twenty (20) quoted companies from the NSE were used for the analysis. The

result provides that earnings contribute deeply to keeping the company and making
32
their operation effective and efficient, as the result reveals a positive and

significant relationship with market value. On the other hand, dividend per share

and earnings per share indicate negative relationship with market value. Therefore,

the study is supporting the Miller and Modigliani theory that dividend policy is

irrelevant to market value. In other words, promoting dividend policy is irrelevant

to market value, rather promoting earnings is pivotal as it exerts positive influence

on market value; therefore, enhancing investment.

5.2. Recommendations

Based on the findings of the study the following recommendations are made:

- Given the positive relationship between earnings and market value of firms

in Nigeria, investors should take into consideration earnings announcements

before taking their investment decision.

33
 - Since dividend per share has a negative relationship between market value,

the Nigerian government should put in place policies that will create

investment friendly environment.

- Firms should enhance their operations by managing the resources of firm

effectively and efficiently to increase earnings.

- Companies operating in the financial services sector of Nigeria should not

see dividend policy as a strategy towards increasing their market value

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37
 APPENDICES
APPENDIX 1

Data on ENS, EPS, DPS and MKTVAL

COMPANY YEAR ENS EPS DPS MKTVAL
38
Okomu Oil
Palm 2015 2893645 3 100 20053186
Okomu Oil
Palm 2016 5906453 515 150 24507665
Okomu Oil
Palm 2017 11140142 959 150 31273705
Okomu Oil
Palm 2018 10337171 9 300 38417953
Okomu Oil
Palm 2019 7978488 3 300 43194584
Prescoplc 2015 4214741 2 100 55477999
Prescoplc 2016 31226453 22 200 83161837
Prescoplc 2017 7815063 2536 150 45986205
Prescoplc 2018 6321010 430 200 58678749
Prescoplc 2019 5519353 3.02 200 65888658
UAC of Nigeria 2015 7733077 156 100 128655328
UAC of Nigeria 2016 8368087 195 100 138229559
UAC of Nigeria 2017 3246120 69 100 130617133
UAC of Nigeria 2018 -5512401 -211 1400 131093162
UAC of Nigeria 2019 8104553 56 64 108531117
Julius Berger 2015 6499973 133 270 245086270
Julius Berger 2016 -1498029 228 150 259178932
Julius Berger 2017 3739140 4 361 275393793
Julius Berger 2018 10197667 5 100 288429999
Julius Berger 2019 14684932 3 200 326647884
Nigerian
Breweries 2015 54514973 482 350 356218676
Nigerian
Breweries 2016 39674518 358 360 367146468
Nigerian
Breweries 2017 46630058 413 258 382228093
Nigerian
Breweries 2018 29421952 243 313 388262869
Nigerian
Breweries 2019 13318268 166 183 386933050
Vitafoam
Nigeria 2015 213097 84 25 12849555
Vitafoam
Nigeria 2016 61198 -4 15 13345546

39
Vitafoam
Nigeria 2017 258144 16 12 13226874
Vitafoam
Nigeria 2018 16001181 63 25 14390628
Vitafoam
Nigeria 2019 3495838 108 25 13821574
12561600 400684200
Zenith Bank 2015 0 336 180 0
15674800 473982500
Zenith Bank 2016 0 412 202 0
19931900 559525300
Zenith Bank 2017 0 566 177 0
23168500 595571000
Zenith Bank 2018 0 615 245 0
11167700 589859600
Zenith Bank 2019 0 283 250 0
259133015
Access Bank 2015 75038117 265 54 1
348386556
Access Bank 2016 90339456 250 53 4
410224282
Access Bank 2017 80072482 218 40 0
10318770 495415693
Access Bank 2018 3 325 40 8
642732406
Access Bank 2019 41147512 137 25 8
GlaxoSmithklin
e 2015 1157514 96 30 31329714
GlaxoSmithklin
e 2016 185891 199 30 28189079
GlaxoSmithklin
e 2017 1124269 41 30 26495179
GlaxoSmithklin
e 2018 1160154 52 40 15700056
GlaxoSmithklin
e 2019 868515 17 50 17544464
FidsonHelathca
re 2015 838039 50 15 16670325
Fidson 2016 443787 21 5 16666935

40
Healthcare
Fidson
Healthcare 2017 1578547 71 5 17446718
Fidson
Healthcare 2018 160867 -6 0.2 20483325
Fidson
Healthcare 2019 405789 13.24 0.15 23828100
Lafarge Africa 2015 29286847 574 360 451682798
-
Lafarge Africa 2016 22818718 315 300 501373697
-
Lafarge Africa 2017 34032277 -637 105 587290284
-
Lafarge Africa 2018 19508228 -105 150 540736663
Lafarge Africa 2019 9274050 56 0 577454527
Berger Paints 2015 565212 114 75 3895870
Berger Paints 2016 271770 77 75 4102265
Berger Paints 2017 339456 85 50 4311424
Berger Paints 2018 454328 111 65 4535299
Berger Paints 2019 145648 50 65 4566154
Aluminum
Extrusion 2015 120439 38 0 1840324
Aluminum
Extrusion 2016 127563 38 850 2239592
Aluminum
Extrusion 2017 124014 38 850 2258128
Aluminum
Extrusion 2018 128043 39 850 2499571
Aluminum
Extrusion 2019 53830 15 0.085 2713097
B.O.C. Gases 2015 131042 29 10 3214476
B.O.C. Gases 2016 121457 18 5 3630953
B.O.C. Gases 2017 383886 56 5 4248556
B.O.C. Gases 2018 558569 86 20 4491256
B.O.C. Gases 2019 340013 31 40 4835104
Mobil Oil 2015 6906322 1351 660 54072089
Mobil Oil 2016 12019892 2261 720 61701329
Mobil Oil 2017 11137886 2085 800 74848928
Mobil Oil 2018 13695459 2587 825 70660798

41
 1157.
Mobil Oil 2019 6186284 3 0 74378432
Total Oil 2015 6495390 1192 900 85070215
Total Oil 2016 20353076 44 1200 136928160
Total Oil 2017 11795283 2362 700 107981873
Total Oil 2018 12098463 23 1400 132520783
Total Oil 2019 3652348 0 1400 132293078
Transcorp
Hotels 2015 5377968 46 37 91341030
Transcorp
Hotels 2016 5234986 54 41 90842992
Transcorp
Hotels 2017 3680155 27 40 100532540
Transcorp
Hotels 2018 5041581 49 15 111277586
Transcorp
Hotels 2019 1166644 7 15 11600040
NAHCO 2015 796796 34 20 14929178
NAHCO 2016 909625 36 22 12634585
NAHCO 2017 600011 48 22 12262071
NAHCO 2018 503237 12 25 12345870
NAHCO 2019 579596 28 25 13800743
Guinness 2015 10795102 518 0 122246632
Guinness 2016 -2347241 -134 50 136992444
Guinness 2017 2662081 128 64 146038216
Guinness 2018 9943164 330 184 153254968
Guinness 2019 7103630 250 0 160792627
AIICO
Insurance 2015 1799294 18 0 80126161
AIICO
Insurance 2016 11835236 147 5 77502199
AIICO
Insurance 2017 3040489 18 0.2 92413127
AIICO
Insurance 2018 3495871 35 0.05 109988570
AIICO
Insurance 2019 3118806 34 0.06 135579941
Source: Firms Annual Report and NSE Statistical Bulletin

42
 APPENDIX 2

POOL REGRESSION

Dependent Variable: LNMKTVAL

Method: Panel Least Squares
43
Date: 05/02/25 Time: 09:15
Sample: 2015 2019
Periods included: 5
Cross-sections included: 21
Total panel (unbalanced) observations: 85
Coefficie
Variable nt Std. Error t-Statistic Prob.
-
LNEPS 0.028896 0.062490 -0.462414 0.6450
LNENS 1.000496 0.052519 19.05016 0.0000
-
LNDPS 0.135397 0.048184 -2.809975 0.0062
C 3.489648 0.702340 4.968605 0.0000
Mean dependent 17.9682
R-squared 0.842603 var 1
Adjusted R- S.D. dependent 2.11851
squared 0.836773 var 3
Akaike info 2.57260
S.E. of regression 0.855908 criterion 8
Sum squared 2.68755
resid 59.33884 Schwarz criterion 6
- Hannan-Quinn 2.61884
Log likelihood 105.3358 criter. 3
Durbin-Watson 0.99222
F-statistic 144.5404 stat 5
Prob(F-statistic) 0.000000

APPENDIX 3

FIXED EFFECT

Dependent Variable: LNMKTVAL

Method: Panel Least Squares

44
Date: 05/02/25 Time: 09:16
Sample: 2015 2019
Periods included: 5
Cross-sections included: 21
Total panel (unbalanced) observations: 85
Coefficie
Variable nt Std. Error t-Statistic Prob.
-
LNEPS 0.013003 0.028454 -0.456999 0.6493
LNENS 0.130527 0.055678 2.344323 0.0223
-
LNDPS 0.036084 0.032368 -1.114811 0.2693
C 16.19447 0.801647 20.20149 0.0000
Effects
Specification
Cross-section fixed (dummy variables)
Mean dependent 17.9682
R-squared 0.985547 var 1
Adjusted R- S.D. dependent 2.11851
squared 0.980098 var 3
Akaike info 0.65531
S.E. of regression 0.298871 criterion 8
Sum squared 1.34500
resid 5.448753 Schwarz criterion 8
- Hannan-Quinn 0.93273
Log likelihood 3.851034 criter. 1
Durbin-Watson 1.58128
F-statistic 180.8522 stat 1
Prob(F-statistic) 0.000000

APPENDIX 4

RANDOM EFFECT

Dependent Variable: LNMKTVAL

Method: Panel EGLS (Cross-section random effects)
45
Date: 05/02/25 Time: 09:16
Sample: 2015 2019
Periods included: 5
Cross-sections included: 21
Total panel (unbalanced) observations: 85
Swamy and Arora estimator of component variances
Coefficie
Variable nt Std. Error t-Statistic Prob.
-
LNEPS 0.015098 0.027942 -0.540330 0.5905
LNENS 0.428499 0.046513 9.212487 0.0000
-
LNDPS 0.057702 0.030198 -1.910791 0.0596
C 11.79053 0.675985 17.44199 0.0000
Effects
Specification
S.D. Rho
Cross-section random 0.637834 0.8200
Idiosyncratic random 0.298871 0.1800
Weighted Statistics
Mean dependent 3.99562
R-squared 0.338616 var 5
Adjusted R- S.D. dependent 0.86392
squared 0.314120 var 6
15.3395
S.E. of regression 0.435175 Sum squared resid 3
Durbin-Watson 0.94011
F-statistic 13.82348 stat 3
Prob(F-statistic) 0.000000
Unweighted
Statistics
Mean dependent 17.9682
R-squared 0.566340 var 1
Sum squared 163.4899 Durbin-Watson 0.08820

46
resid stat 7

APPENDIX 5

LIKELIHOOD TEST

Redundant Fixed Effects Tests

47
Equation: Untitled
Test cross-section fixed effects
Effects Test Statistic d.f. Prob.
Cross-section F 30.165575 (20,61) 0.0000
202.96957
Cross-section Chi-square 0 20 0.0000

Cross-section fixed effects test equation:

Dependent Variable: LNMKTVAL
Method: Panel Least Squares
Date: 05/02/25 Time: 09:17
Sample: 2015 2019
Periods included: 5
Cross-sections included: 21
Total panel (unbalanced) observations: 85
Coefficie
Variable nt Std. Error t-Statistic Prob.
-
LNEPS 0.028896 0.062490 -0.462414 0.6450
LNENS 1.000496 0.052519 19.05016 0.0000
-
LNDPS 0.135397 0.048184 -2.809975 0.0062
C 3.489648 0.702340 4.968605 0.0000
Mean dependent 17.9682
R-squared 0.842603 var 1
Adjusted R- S.D. dependent 2.11851
squared 0.836773 var 3
Akaike info 2.57260
S.E. of regression 0.855908 criterion 8
Sum squared 2.68755
resid 59.33884 Schwarz criterion 6
- Hannan-Quinn 2.61884
Log likelihood 105.3358 criter. 3
Durbin-Watson 0.99222
F-statistic 144.5404 stat 5
Prob(F-statistic) 0.000000
48
 APPENDIX 6

HAUSMAN TEST

Correlated Random Effects - Hausman Test

Equation: Untitled

49
Test cross-section random effects
Chi-Sq. Chi-Sq.
Test Summary Statistic d.f. Prob.
Cross-section random 95.550762 3 0.0000

Cross-section random effects test comparisons:

Var
Variable Fixed Random (Diff.) Prob.
-
LNEPS 0.013003 -0.015098 0.000029 0.6965
LNENS 0.130527 0.428499 0.000937 0.0000
-
LNDPS 0.036084 -0.057702 0.000136 0.0635

Cross-section random effects test equation:

Dependent Variable: LNMKTVAL
Method: Panel Least Squares
Date: 05/02/25 Time: 09:18
Sample: 2015 2019
Periods included: 5
Cross-sections included: 21
Total panel (unbalanced) observations: 85
Coefficie
Variable nt Std. Error t-Statistic Prob.
C 16.19447 0.801647 20.20149 0.0000
-
LNEPS 0.013003 0.028454 -0.456999 0.6493
LNENS 0.130527 0.055678 2.344323 0.0223
-
LNDPS 0.036084 0.032368 -1.114811 0.2693
Effects
Specification

50
Cross-section fixed (dummy variables)
Mean dependent 17.9682
R-squared 0.985547 var 1
Adjusted R- S.D. dependent 2.11851
squared 0.980098 var 3
Akaike info 0.65531
S.E. of regression 0.298871 criterion 8
Sum squared 1.34500
resid 5.448753 Schwarz criterion 8
- Hannan-Quinn 0.93273
Log likelihood 3.851034 criter. 1
Durbin-Watson 1.58128
F-statistic 180.8522 stat 1
Prob(F-statistic) 0.000000

51