Dividend Payout Ratio and the Financial Performance of Deposit Money Banks in Nigeria
Imeokparia Lawrence & Ezeokoli Clementina
Department of Economics, Accounting and Finance
Bells University of Technology, P.M.B 1015 Ota Ogun State Nigeria
Email: Imeolaw2@gmail.com
Corresponding Author: Imeokparia Lawrence
ABSTRACT
This study examined the effect of dividend payout on the financial performance of selected listed deposit money banks in Nigeria from 2007 to 2016. The study randomly selected ten (10) banks listed on the Nigeria Stock Exchange and obtained data from the annual reports of the banks from 2007 to 2016. The data extracted were analyzed using the pooled ordinary least square method of regression, descriptive analysis and correlation analysis. Two models were developed in an attempt to provide a theoretical explanation on the birds-in-hand dividend relevance theory and the Modigliani and Miller’s (MM) dividend irrelevance theory. For the first model, the dependent variable (EPS) shows that R2 = 0.57 (57%) and the adjusted R2 =0.50 (50%) this shows that 57% and 50% of the total variation in the dependent variable is explained by the independent variables (leverage, growth, bank size, board size). The p-value of dividend payout ratio is 0.000000; the model therefore shows that there is a significant relationship between firm performance and dividend payout variables. The result found that there was a positive and insignificant relationship between bank size and earnings per share. While the second model, the dependent variable (Tobin Q) shows that R2 =0.394463 (39%) and the adjusted R2 =0.294728 (29%) that the independent variables are not sufficient enough to explain the dependent variable. The study finds that the p-value is 0.000034; the model therefore shows that there is a significant relationship between firm performance and dividend payout variables. The study found that there was a positive and insignificant relationship between Tobin Q and the independent variables; dividend payout and board size. The study therefore recommends that banks with riskier and higher profits should adopt a low dividend payout ratio. They should plough back a major proportion of the profit into the bank in order to retain capital for future investment.
Keywords: Dividend, Financial performance, Leverage, Board size, Earning per share
