Dividend Policy and Firm Value: Evidence from the Nigerian Manufacturing Industry

Abstract

The impact of dividend payment on firm value is a subject of ongoing debate by academics and practitioners. We examine the impact of dividend policy on the value of Nigerian manufacturing companies over the period 2010 and 2018. Pooled ordinary least square (OLS) and fixed effect regression analysis was applied on twenty of the thirty-five manufacturing companies listed on the Nigeria Stock Exchange (NSE). The result indicates a significant positive relationship between dividend payout ratio, dividend per share and firm value. We also observe a bidirectional relationship between leverage ratios and price to book value with the coefficients of debt-to-equity ratio consistently positive and significant, while that of debt-to-asset ratio is negative. We conclude that while dividend payment positively affects firm value, resultant increased leverage to compensate for cash outflow may offset the positive effect on value. An appropriate balance between dividend payout and increase leverage is thus required.

Keywords: Dividend policy, Firm value, Leverage, Manufacturing

DOI: 10.7176/EJBM/14-14-08

Publication date:July 31^st 2022