Effect of Dividend Policy on the Value of Firms (Emperical Study of Quoted Firms in Nigeria Stock Exchange)

Abstract

The study empirically investigated the effect of dividend policy on the value of firms as reflected on share holder’s wealth maximization. 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 with the aid of econometric statistical packages version 8. 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; this result is similar to that of Baker, H.K. 1989. Based on this, the study concluded that earning per share is the predominant variable to influence the share value of firms. It is therefore recommended that finance managers should play an important role in the debt-equity mix in the balance sheet in order to magnify the earning per share as will be reflected in the wealth of shareholders.

Keywords: earnings per share, dividend per share, internal rate of return, market value per share, impulse response, variance decomposition.