Empirical Test of the Dividend Policy Irrelevance Hypothesis in the Nigerian Context

Abstract

This research was carried out to examine the relevance of dividend policy in market price determination in the Nigerian capital market. With annual data from 20 highly capitalized companies quoted on the Nigerian Stock Exchange for the period 2005-2012, we found that the level of dividends is largely influenced by the level of  retained earnings in at least 70 per cent of the companies sampled.  There is no significant relationship between change in dividend policy and change in market price. The retained earnings coefficient is more significant than the dividend coefficient in market price determination.  Overall, the results agree with the earlier research works which argue that dividend policy is irrelevant in determining enterprise value. In a world of withholding taxes, it is capital appreciation and the reinvestment level, not necessarily dividend policy, that affects stock market behaviour in Nigeria.

Keywords:  Dividend policy, hypothesis, Nigeria, enterprise value.