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EMPIRICAL ANALYSIS OF THE EFFECTS OF DIVIDEND PAYMENT

ON SHARE PRICES: EVIDENCE FROM SOME QUOTED FIRMS IN

A THESIS SUBMITTED TO THE DEPARTMENT OF

OLISEKEBE, VALENTINE IKE

PG/M.Sc/04/38437



NIGERIA

BANKING AND FINANCE�

A THESIS SUBMITTED TO THE DEPARTMENT OF BANKING AND FINANCE,

FACULTY OF BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA

ENUGU CAMPUS

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Digitally Signed by Webmaster’s Name

DN : CN = Webmaster’s name O= University of Nigeria, Nsukka

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APRIL, 2011




�

BANKING AND FINANCE,

, UNIVERSITY OF NIGERIA

DN : CN = Webmaster’s name O= University of Nigeria,

EMPIRICAL ANALYSIS OF THE EFFECTS OF DIVIDEND PAYMENT ON SHARE PRICES:

EVIDENCE FROM SOME QUOTED FIRMS IN NIGERIA

BY


PG/M.Sc/04/38437

A DISSERTATION PRESENTED TO THE SCHOOL OF

POSTGRADUATE STUDIES, DEPARTMENT OF BANKING AND

FINANCE, FACULTY OF BUSINESS ADMINISTRATION, UNIVERSITY

OF NIGERIA, ENUGU CAMPUS

APRIL, 2011



NIGERIA

BY


PG/M.Sc/04/38437

A DISSERTATION PRESENTED TO THE SCHOOL OF

POSTGRADUATE STUDIES, DEPARTMENT OF BANKING AND

FINANCE, FACULTY OF BUSINESS ADMINISTRATION, UNIVERSITY

OF NIGERIA, ENUGU CAMPUS

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE

AWARD OF THE DEGREE OF MASTERS OF SCIENCE (M.Sc) DEGREE

OF THE UNIVERSITY OF NIGERIA, NSUKKA

SUPERVISOR

DR. B. E. CHIKELEZE

APRIL, 2011

TITLE PAGE



NIGERIA

APPROVAL PAGE

This dissertation has been approved by the Department of Banking and Finance, Faculty of

Business Administration, University of Nigeria, Enugu Campus.

_____________________ ___________________ Dr. B. E. Chikeleze Date: (Supervisor)

_____________________ ___________________ Dr. J.U.J Onwumere Date: (Head of Department)

______________________ ___________________

External Examiner Date:

CERTIFICATION

This is to certify that this dissertation by Olisekebe, Valentine Ike with registration number

PG/M.Sc/04/38437 presented to the Department of Banking and Finance, University of Nigeria,

Enugu Campus, under the supervision of Dr. B.E. Chikeleze, is original and has never been

submitted for the award of any degree or diploma either in this or any other tertiary institution.

_____________________ ___________________ Olisekebe, Valentine Ike Date (Student) This is to certify that this dissertation by Olisekebe, Valentine Ike with registration number

PG/M.Sc/04/38437 presented to the Department of Banking and Finance, University of Nigeria,

Enugu Campus, was submitted in partial fulfillment of the requirements for the award of Master

of Science (M.Sc) degree in Banking and Finance.

_____________________ ___________________ Dr. B. E. Chikeleze Date (Supervisor)

_____________________ ___________________ Dr. J.U.J. Onwumere Date (Head of Department)

_____________________ ___________________ Professor Ikechukwu E. Nwosu, PhD Date (Dean of Faculty)

DEDICATION

This research work is dedicated to my beloved sister {(Mrs. Angela Olumide Kolapo (Nee

Olisekebe)} who was called to Glory in April, 1999. May she continue to dwell in the bosom of

the Lord God Almighty till we meet to part no more. Amen.

ACKNOWLEDGMENT

I give God all the glory for preserving my life and giving me the strength, wisdom, knowledge,

understanding, and most importantly for giving me good health, patience, courage and

inspiration to scale through this rigorous process of Masters of Science (M.Sc) degree

programme in my continuous quest for achieving greatness through divine direction. May the

name of the Almighty God be continuously exalted forever and ever in JESUS Name.

In the course of carrying out this research, the ALMIGHTY GOD linked me up to great

personalities of different academic disciplines and professional status who have encouraged me

to strive to be all I could be. And this research work therefore is a synergistic effort of those

great individuals who are academically honest and professionally efficient, some of whose

names appear below.

I would like to express my profound gratitude to my able supervisor, Dr. B. E. Chikeleze for his

patience, interest, vast experience, knowledge and most of all for devoting most of his official

and leisure time to go through the manuscript and offer reliable suggestions and constructive

criticisms which have certainly improve the quality of this study. I also thank Mr. Achugbue

Oliver, Mrs. Ugwuanyi R.E; Mr. Mohammed B.A. (All of the Nigerian Stock Exchange,

Onitsha, Anambra State, Nigeria) who provided me with relevant research materials during the

course of the study.

My special thanks go to the woman who conceived me: my mother: Mrs. Nkechi M.N.C. for her

love, sacrifice, patience, supports, encouragements, prayers and for providing the necessary

environment for the development of my potential and exposing me into this level of academic

greatness.

To Dr. Nwachukwu M.U. of the department of Urban and Regional Planning, Faculty of

Environmental Sciences, University of Nigeria, Enugu Campus, who exposed my work into

quantitative analysis of econometric and statistical approach. Indeed, Dr. Nwachukwu’s.

inspirations, guidance and contributions to this study made me have greater indebt knowledge

and understanding of an empirical approach to academic/research work, a framework I can now

use round the world. He will not be forgotten for his contributions to my knowledge which I will

continuously update.

Many colleagues, scholars, managers, consultants and students have contributed their ideas and

suggestions to this study. My good friends, Echekoba Felix, a lecturer with Nnamdi Azikiwe

University Awka, State, Dr. Abel, a lecturer with the Ebonyi State University, Abakiliki, Ebonyi

State, and Mr. Ekums., E., a lecturer with the Federal Polytechnic Nassarawa, were particularly

generous with their time. REMS Consult, Enugu, has done much in providing me with the SPSS

computer software to run the regression analysis in chapter four of this study. My wife’s

contribution has been important for the completion of this work.

Furthermore, I wish to sincerely appreciate the effort of all the lecturers in the Department of

Banking and Finance, Faculty of Business Administration, University of Nigeria, Enugu

Campus. This study has also profited from the criticisms, suggestions, and technical assistance of

those lecturers such as: Dr. J.U.J Onwumere: (HOD Banking and Finance), Professor Francis

Okafor; Professor C.U. Uche; Professor (Mrs.) C. Nnoli;; Dr. Sam Isitor; Dr. B.E. Chikeleze; Dr.

U.F. Amaeshi; D. N. Asomugba; Dr. E.O.C. Onah; F.C. Ahio; Mrs. N.J. Modebe; and many

others too numerous to mention. Thank you for exposing me to reservoir of knowledge

throughout my academic pursuit. At first, I thought it was a punitive measure, but at last, I

understood it is a golden exercise one must encounter to become intellectually sophisticated.

To pioneers in the development to what has been known as “Dividend and Share Prices

Valuation”: - Duran, Solomon, Ezeike, Modigliani, Miller, Walter, Okafor, Iintner, Fama,

Roll, Black, Schole, Myers, Ross, Bayer, Jansen, Black, Ekechi, Allile, Bar-Yosef, Brennan,

Cochrane, Fisher, Friend, Puckett, Gordon, Graham, Morgan, Nnanna, Oludoyi, Osaze, Ross,

Udegbunam, Williams, to numerous to mention.

I wish to equally use this opportunity to express my special thanks to my brothers: Victor,

Anslem and Francis; Mrs. Janet Chukwuka (Late) my grandmother who was called to glory in

July, 2006 at the age of 85, she contributed immensely to my upbringing physically and

otherwise, may her gentle soul continue to dwell in the presence of the Almighty God in Jesus

Name. Others are: Dr. Daniel K. Olukoya -the General Overseer of Mountain of Fire and

Miracle Ministries Worldwide; Pastor Enoch Adeboye–General Overseer; Redeemed Christian

Church of God Worldwide; My father – Mr. F.R.A Olisekebe for bringing me into the world;

and all my course mates for their intelligent and progressive ideas during academic discussions.

Finally, to staff of the Research Department of the Nigerian Stock Exchange, Lagos, Onitsha,

and Abuja, all staff of the Research Department – Central Bank of Nigeria, Abuja FCT, All

library staff of the University of Nigeria, Nsukka and Enugu Campuses. All staff of the Research

Department – Securities and Exchange Commission (SEC) Abuja, and National library Abuja.

Olisekebe, Valentine Ike (Research Student).

ABSTRACT

There has been a lot of controversy over what influences stock prices mostly on the Stock Exchange. While some analysts believe that dividend payment is responsible for the stock price movements on the Stock Exchange, others claim that dividend payment is irrelevant to share price valuation. They are of the opinion that what matters to the investors are the financial performance of the companies and not dividend payouts. It is the objective or aim of the study to find out or ascertain whether dividend payment has any direct influence on the movement of share prices on the Stock Exchange with particular reference to some quoted firms in Nigeria; to analyse the effect of the size of dividend payout ratio on share prices, and to determine whether significant variations exist among the various selected quoted firms in Nigeria. This study also tried to identify other factors that may significantly affect stock prices movement. Above all, this research examined whether there is a strong empirical relationship or association between dividend and stock prices. Two models were used in this study as an econometric and statistical tools namely: Simple Linear Regression (SLR) Technique, and the Analysis of Variance, Technique. The researcher’s empirical result suggests that dividend payment has no significant influence on the movement of share prices on the thirty (30) selected quoted firms in the NSE; the size of dividend payout ratio has no significant influence on the movement of share price on the thirty (30) selected quoted firms in the NSE, and lastly, that significant variations exist in the trend of share prices among the thirty (30) selected quoted firms in NSE. The study revealed that in theory, the forces of demand and supply are the major factors that influence stock prices in the Nigerian Stock Exchange (NSE). But in practice, there are some other endogenous and exogenous variables like: level of interest yield and differentials, the world Economy and political situations within the country, etc that tend to combine to influence the reactions of stock market participants to stock prices. Among others, the research recommends that quoted firms should endeavour to formulate dividend policies that will maximize the shareholders wealth, and optimal dividend payout should be determined with the firm’s investment opportunities, and any preference that investors have for dividend as opposed to capital gain among others.

TABLE OF CONTENTS

Title Page i

Approval Page ii

Certification iii

Dedication iv

Acknowledgement v

Abstract viii

Table of Contents ix

List of Tables xiv

List of Figures xv

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study 1

1.2 Statement of the Problem 3

1.3 Research Objectives 4

1.4 Research Questions 4

1.5 Research Hypotheses 4

1.6 Significance of the Study 5

1.7 Scope of the Study 6

1.8 Limitation of the Study 7

1.9 Definition of Terms 7

References 11

CHAPTER TWO: THE REVIEW OF RELATED LITERATURE AND THEORETICAL

FRAMEWORK

2.1 Introduction 13

2.2 Theoretical Framework 13

2.3 Types of Cash Dividend 16

2.4 Dividend Valuation Model 16

2.5 Kinds of Dividend Policy 17

2.6 Factors Influencing Dividend Policy 18

2.7 Dividend Policy Analysis: A Case of L&T LTD 20

2.8 Dividend Payment and Stock Repurchase 23

2.9 Optimal Dividend Policy 24

2.10 Information Content of Dividend 25

2.11 Life Cycle Growth and Dividend 27

2.12 Consistency of Dividends 28

2.12.1 Empirical Studies: A Case of U.K. United Utilities 29

2.12.2 The Dividend Cover 30

2.13 Dividend Payout Ratio 31

2.13.1 Empirical Studies 32

2.14 Magnitude of Dividend 33

2.15 Stock Trend Analysis 34

2.16 Dividend Announcement on Share Prices 35

2.17 School of Though on Dividend: Empirical Evidence 36

2.18 Argument for Relevance of Dividend 36

2.19 Argument for the Irrelevance of Dividend 42

2.20 Criticisms of the Modigliani and Miller’s Argument 49

2.21 Dividend and Stock Prices 51

2.22 The Stock Valuation Model 54

2.23 Factors that can Influence Movement of Stock Prices on the Stock Exchange 54

2.24 Nigerian Stock Exchange (NSE) 57

2.24.1 Operations on the NSE 58

2.24.2 Trading System on the NSE 58

2.24.3 Pricing on the NSE 59

2.24.4 NSE: All Share Index 59

2.24.5 Clearing, Delivering and Settlement on the NSE 59

2.24.6 Stock Market Legislations: An NSE Guide 59

2.24.7 Regulation on the NSE 60

2.24.8 Foreign Investment on Corporate Firms on the NSE 60

2.25 Quoted Vs. Unquoted Companies 60

2.26 From Private to Public Company 61

2.27 The Efficient Market Hypothesis: Introduction 62

2.27.1 Efficient Market Hypothesis 63

2.27.2 Evidence against EMH and Alternate Theories of Market Behaviour 65

2.27.3 Volatility Test, Fads, Noise Trading 70

2.27.4 Models of Human Behaviour 72

2.27.5 Keynes and EMH 75

2.27.6 Section Summary 76

References 78

CHAPTER THREE: RESEARCH DESIGN/METHODOLOGY

3.1 Introduction 88

3.2 Research Design 88

3.4 Population of the Study 88

3.5 The Sample and Sampling Techniques 89

3.6 Sources of Data Collection 90

3.7 Data Analysis Instrument 90

3.8 Model Specification 91

3.9 Area for Further Research 93

References 95

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction 96

4.2 Data Presentation 96

4.3 Data Analysis 147

4.4 Data Interpretation/Implication of Results 149

4.5 Some Further Empirical Tests and Results 150

References 173

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction 174

5.2 Summary of Findings 174

5.3 Conclusion 177

5.4 Recommendations 179

References 182

Bibliography 183

Appendices 195

LIST OF TABLES

2.0: L & T is EPS, DPS and Other Financial Data 21

4.2.1: Dunlop Nigeria Plc 97

4.2.2: R. T. Briscoe Nigeria Plc 98

4.2.3: First Bank of Nigeria Plc 99

4.2.4: United Banks for Africa (UBA) Plc 99

4.2.5: Union Bank of Nigeria (UBN) Plc 100

4.2.6: Nigeria Breweries Plc 101

4.2.7: Guinness Nigeria Plc 102

4.2.8: Ashaka Cement Plc 102

4.2.9: West African Portland Cement (WAPCO) Plc 103

4.2.10: Berger Paints Nigeria Plc 104

4.2.11: Cap Plc 105

4.2.12: Trans-Nationwide Express Plc 106

4.2.13: John Holt Nigeria Plc 106

4.2.14: Unilever Nigeria Plc 107

4.2.15: P.Z Industries Nigeria Plc 108

4.2.16: UAC of Nigeria Plc 109

4.2.17: A.G. Leventis Plc 110

4.2.18: Cappa ‘D Alberto Nigeria Plc 111

4.2.19: Julius Berger Nigeria Plc 111

4.2.20: 7-Up Bottling Company Plc 112

4.2.21: Cadbury Nigeria Plc 113

4.2.22: Flour Mills Nigeria Plc 114

4.2.23: Nestle Food Nigeria Plc 114

4.2.24: Nigeria Bottling Company Plc 115

4.2.25: May and Baker Nigeria Plc 116

4.2.26: Neimeth International Pharmaceutical Plc 117

4.2.27: Vitafoam Nigeria Plc 118

4.2.28: Mobil Nigeria Plc 119

4.2.29: Texaco Nigeria Plc 119

4.2.30: Total Nigeria Plc 120

Table 4.3.0: A Summary of Dividend Payout Ratio and Market Prices of Stocks of Various

Firms under Study between 1995 – 2006

4.3.1: Dunlop Nigeria Plc 121

4.3.2: R.T. Briscoe Nigeria Plc 122


4.3.4: United Bank for Africa (UBA) Plc 124

4.3.5: Union Bank of Nigeria (UBN) Plc 125


4.3.7: Guinness Nigeria Plc 126



4.3.10: Berger Paints Nigeria Plc 129

4.3.11: Cap Plc 130

4.3.12: Trans-National Wide Express Plc 131

4.3.13: John Holt Nigeria Plc 132


4.3.15: P.Z. Industries Plc 134

4.3.16: UAC of Nigeria Plc 135


4.3.18: Cappa and’D’ Alberto Nigeria Plc 136


4.3.20: 7-Up Bottling Company Plc 138


4.3.22: Flour Mills Nigeria Plc 140


4.3.24: Nigeria Bottling Company (NBC) Plc 141

4.3.25: May and Baker Nigeria Plc 142

4.3.26: Neimeth International Pharmaceutical Plc 143

LIST OF FIGURES

2.0: L & T EPS and DPS during 1990 – 2003 21

2.1: L & T Payout Ratio 1990 – 2003 22

2.2: L & T Share Price Behaviour 1990 – 2003 22

2.3: L & T Earning and Dividend Yield 1990 – 2003 23

2.4: Life Cycle Growth and Dividends 27

2.5: Dow Theory Bear Market Signal 35

2.6: Possible Stock Price Effect 40

4,2,2: R. T. Briscoe Nigeria Plc 98



4.2.11: Cap Plc 105


4.2.15: P. Z. Industries Nigeria Plc 109


4.2.24: Nigeria Bottling Company Plc 116



4.3.2: R. T. Briscoe Nigeria Plc 122


4.3.4: United Bank for Africa (UBA) Plc 124



4.3.10: Berger Paint Nigeria Plc 130

4.3.12: Trains-Nationwide Express Plc 132






4.3.24 May and Baker Nigeria Plc. 143



CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The payments of dividends have long been matters of debate in corporate finance under

conditions of symmetric information and taxes, dividends have been dubbed a puzzle (Black,

1976). Several authors model dividend policy under the assumption that information is

distributed asymmetrically between managers and investors. Bhattacharya (1979, 1980) argues

that firms pays dividend because dividend signals the private information of managers and thus

helps market participants value the firm. Ambarish et al (1987) suggest that high-value firms

choose investment and dividends jointly to separate themselves from low-value firms. In other

words, dividends are not residual payment as implied by classical finance theory. John and

Williams (1985) and Ambarish et al (1987) predict a positive association between dividends and

stock prices. Miller and Rock (1985) argue that once the investment decision of a firm is made,

unanticipated dividends signal changes in earnings and cash flows. These models differ in details

of their assumptions and approach, but reach the same broad conclusion: firms pay dividend to

convey information to investors that cannot be

conveyed costessly and credibly in other ways.

Empirical evidence supports the signaling function of dividends. Asquith and Mullins (1983)

find that the initiation of dividends has a significant positive impact on the firm’s stock price.

They interpret their evidence as consistent with the signaling hypothesis in' that managers use

dividends to communicate private information to investors, the investors react favourably.

Richardson et al (1986) report similar evidence.

Furthermore, when a bank or other company has earnings, it can either (i) return them to

shareholders in the form of dividends or (ii) Retain them within the firms (i.e. retained earnings).

Dividends represent a direct payment to shareholders. Earnings that are retained by the firms

increase the value of the firm in that they can either be invested in projects within the firm that

will enhance future earnings or be invested elsewhere at the market interest rate and be paid out

as dividend in the future (Baye and Jansen 2006:257). The important aspect of dividend policy

is to determine the amount of earnings to be distributed to shareholders and the amount to be

retained in the firm. Retained earnings are the most significant internal source of financing and

growth of the firm. On the other hand, dividends may be considered desirable from shareholders

point of view as they tend to increase their current returns. (Pandey 2006:379).

The Stock Exchange is essentially a capitalist institution (Okafor, 1983:91). That is why it is

extremely important in the economic life in the U.S.A, U.K and other countries of the western

world. In Nigeria the development of securities market has been influenced and fostered by the

government, in some other Less Developed Countries (LDC’s). There was the conviction that the

securities market could be considerably depended upon to finance industrial growth (Ekechi,

1989:6). The Nigerian Stock Exchange serves the important function of financial intermediation

in our economy. In performing this function the stock exchange provides essential support for

financing both the private and government enterprises while creating some opportunities for the

underprivileged to participate, however remotely, in corporate ownership. Thus, it provides

opportunities for government, institutions and companies to raise new or additional funds to

finance their activities.

Securities are a documentary evidence of ownerships or entitlement to claim upon the asset of

the issuing organization. To facilitate trading in these securities, prices are usually competitively

fixed by the consensus of the market participants taking into account the true worth of the

securities by considering the performance and the quality of the management of the organization.

This becomes crucial when it is realized that the final market price of the security is seen as a

mirror reflecting the performance and worth of the issuing company. In other words, the

performance and worth of the issuing company determines the price which investors are

prepared to pay for the company's shares. Hence, the ultimate objective of most organizations is

to ensure a high market value of their shares, so as to maximize the wealth of the shareholders.

This explains why financial managers are always careful in allocating earnings between

dividends and retained earnings, as this decision affects the value of firms. Thus, the two

objectives of dividend policy viz: distribution of dividends and retention of earnings for growth,

though desirable, are in conflict. A higher dividend rate means less retained earnings which may

consequently result in slower growth and lower market price per share.

The market price of stock should not necessary be equal to the par value (justified price) but

simply reflect the forces of demand and supply especially in an efficient market. Theoretically, a

share is worth the present value of the share of the issuing company.

Contrary to the tenets of an efficient market, the Stock Exchange Council occasionally intervenes

in the pricing on the NSE so as to prevent an irresponsible bidding. This is to protect both the

investors and the issuing companies. Consequently, it is in the opinion of most researchers that

most of the shares on the Nigerian Stock Exchange are under-valued. For instance, Adeosun

(1982) contends that the pricing mechanism of the Stock Exchange is excessively controlled and

often faulty. Contrary to the above view Alile and Anao (1986) are of the opinion that quoted

companies usually have realistic market price for their securities even with little or no trading in

their shares, especially if they provide performance information to the exchange. Therefore,

dividend policy, NSE, the present value of share of the issuing company et cetera influences

dividends payments and share price movement.

1.2 STATEMENT OF THE PROBLEM

Financial Managers or Board of Directors in any quoted firm is always very careful in allocating

earnings between dividend and retained earnings as such decisions affect the value of the firm.

The role of stock exchange and the part that security prices play in channeling the flow of capital

into various industries and firms is generally considered most important. The theory of valuation

of income streams has a central and honoured place in the economic doctrine. But, special

problem arise, in the valuation of investors of the income streams of corporations. These special

problems are clearly indicated by the fact that recent literature, there has been considerable

controversy and confusion over the fundamental factors which underline the movement in the

market prices of common stock. This debate yet unresolved has since polarized into two main

fractions; the dividend relevance and the dividend irrelevance groups. The dividend relevance

group maintained that corporate dividend payouts are extremely important in evaluating the

worth of a share. On the other hand, the dividend irrelevance groups are of the view that what

matters in share valuation are the company's earnings performance and not the company's

dividend payouts.

Hence, it is against this backdrop that this research work intends to find out if share prices of

quoted companies in Nigeria are infact affected by corporate dividend payment or dividend

payments merely an artifact which is no way influences the value of it's equity ownership.

1.3 RESEARCH OBJECTIVES

The main objective of this research is to ascertain whether dividend payment has any direct

influence on the movement of share prices on the Nigerian Stock Exchange (NSE) with

particular reference to some quoted firms in Nigeria.

The specific Objectives are:

i) To analyse the effects of the size of the dividend payout ratio on share prices.

ii) To determine whether significant variation exists in the trend of share prices among various

quoted firms in Nigeria Stock Exchange (NSE).

1.4 RESEARCH QUESTIONS

Based on the objective specified above, the pertinent questions we may ask are:

i) To what extent does dividend payment have direct influence on the movement of share

prices of quoted firms in the Nigerian Stock Exchange (NSE)?

ii) To what extent does the size of the dividend payout ratio significantly affect share prices in

the Nigerian Stock Exchange (NSE)?

iii) To what extent does significant variations exist in the trend of share prices among various

quoted firms in the Nigeria Stock Exchange (NSE)?

1.5 RESEARCH HYPOTHESES

In order to achieve the set objective the following hypotheses were formulated:

i) Ho1; Dividend payment has no direct significant influence on the movement of share prices

of quoted firms in Nigeria.

ii) Ho2; Size of dividend payout ratio has no significant influence on the movement of share

prices of quoted firms in Nigeria.

iii) Ho3; There are no significant variations in the trends of share prices among the various

quoted firms in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

Several researches have been done in this field (dividend payment) by different writers. But

within the Nigerian stock market environment there are few empirical tests to show the

relationship between dividend payment and share price behaviour. Hence the need to carryout

empirical test of this nature. It is therefore, hoped that the findings of this research will help to

fill up the existing gap. The research will serve as a proper guide not only to corporate officials

who must set the policy on dividend payment, but to potential investors in financial assets to

enable them take rational investment decisions.

Furthermore, Economist seeking to understand and appraise the functioning of the capital market

will find this research work very useful as it will expose them to the nitty-gritty of capital market

function, hence reduce unnecessary brain storming associated with the design and articulation of

policy advice to potential investors, corporate organizations, government planning portfolios.

In the Nigeria context, it is relevance in relation to the stage of development in the Nigeria stock

market. The NSE is characterized by many uninformed investors; most of them are ignorant of

the happenings in both the economy and the stock exchange in particular, especially as regards

pricing mechanisms of NSE. This study will help thus to enlighten them with regards to those

factors that may influence their stock prices. Hence, will enable them to know when to purchase

or dispose their holdings so as to optimize their immediate income or capital appreciation as the

case may be.

In addition, this study will be very important at the period of economic depression when most of

the banks are engaged in 'payout war'. Thus, from the standpoint of the issuing company, the

study might be relevant in taking decisions on the amount of payout annually as dividends vis-à-

vis on the effect on the capitalization of the company. Also it will give company policy makers

an insight on how to improve the performance of their stock on the stock Exchange through

manipulation of their dividend policies. Other researchers in related studies may also find this

work very useful in carrying out further research or as a secondary source of information relating

to dividend payments and share prices.

1.7 SCOPE OF THE STUDY

The study is inexhaustive when looked at from a wider perspective hence dividend payment

impact on share prices is a broad field. The study does not in any way intend to exhaust all the

facets of the phenomenon. Rather, it will concentrate on the impact of dividend payment while

observing the effect of other factors that can affect stock price movement on the Nigerian §tock

Exchange (NSE).

The firms that formed part of this research include those whose stocks are traded on the floor of

the Nigerian Stock Exchange with exception of public utility firms. Which equally operates in

the following sub-sector/industries (and are based on the NSE classifications), across the

country; viz:

♦♦♦♦ Automobile and Tyre

♦♦♦♦ Banking

♦♦♦♦ Breweries

♦♦♦♦ Building Materials

♦♦♦♦ Chemicals and Paints

♦♦♦♦ Conglomerates

♦♦♦♦ Construction

♦♦♦♦ Food beverages & Tobacco

♦♦♦♦ Healthcare

♦♦♦♦ Industrial/Domestic Products

♦♦♦♦ Petroleum (Marketing)

♦♦♦♦ Printing and Publishing.

At least, between one (1) to five (5) firms were carefully selected from each of the above sub-

sectors to form part of our research using sampling procedure.

The study does not cover:

♦♦♦♦ Preference shares

♦♦♦♦ Industrial debentures, and

♦♦♦♦ Government Development Stocks

1.8 LIMITATION OF THE STUDY

Time and financial constraints posed a slight limitation to this study. This is because, the

researcher has to travel to the major cities in Nigeria like; Lagos, Abuja, Onitsha, et cetera to

source for meaningful materials to foster the completion of this research. Hence, time and

financial resources were grossly inadequate.

Unavailability of sufficient comprehensive data on stock prices quoted in the NSE (from 1995 -

2006) distorted the researcher as this could not be found both at the NSE and the SEC or major

libraries in cities visited. Despite the constraints, the study is not in anyway deficient since some

secondary data available on stock prices of quoted firms were provided at the NSE and SEC

respectively which in turn were use in the analysis of this study. Generally, the researcher put in

enough efforts and a good work done for the users to have confidence on the study of the impact

of dividend payment on share prices of stocks listed on the floor of the Nigerian Stock Exchange

(NSE).

1.9 DEFINITION OF TERMS

Blue chip: A company that is well managed with consistent track record of return on

investments.

Boom: When business expands and the value of commodities and securities increases.

Bond: is an interest bearing debt security/instrument issued by corporate bodies, government,

and government agencies for the financing of infrastructure or for expansion purposes.

Bullish and Bearish: When conditions suggest lower prices, a bearish situation is said to exist.

But if higher prices appear warranted, the situation is said to be bullish.

Capital Gain: Profit made when common stock is sold at a premium,

Capital Market: A network of financial institutions and facilities that interact to mobilize and

allocate long-term savings in the economy.

Clientele Effect: Argument that stock attract particular group based on dividend yield and the

resulting tax effects.

Debenture: A fixed interest bearing securities

Declaration Date: Is the date that dividend payment is announced. Or the date on which the

board of directors (BOD) passes a resolution to pay dividend.

Dividend Per Share (DPS); The naira amount dividends paid to shareholders for each share

owned of a corporations common stock.

Dividend Yield: Is the actual rate of return on this investment.

Dividend Cover: This shows how many times the actual dividend cover could be paid from the

available profit and it is regarded as a measure of how secured a dividend is, that is how likely it

is to be maintained in future (or earning per share divided by dividend paid.

Earning Per Share (EPS): Is a gross profit of a company less tax and obligation to preference

shares and bondholders, divided by the company's paid-up capital.

Equity Earning; A portion of surplus earnings of a subsidiary company, over dividend

payments that are unreported by the parent company.

Equity Securities: Any stock issue, common or preferred.

Ex-dividend Date: The date by which stock purchased on or after is not eligible to receive the

declared dividend.

Going Public: Describes a situation when a firm's shares become available on a major

Exchange.

Growth Stock: Common stock of a company that has an opportunity to invest money to earn

more than the opportunity cost of capital.

Homemade Dividends: An individual investor can undo corporate dividend policy by

reinvesting excess dividends or selling off shares of stock to receive a desired cash flow.

Income Stock: Common stock with higher dividend yield and few profitability investment

opportunities.

Initial Public Offering (IPO): The company first public offering of its shares. This is also

known as going public.

Investment/Subscription: The two concepts which, may be used interchangeably and they

simply refer to the commitment of funds to government or industrial securities with the

expectation of a positive return commensurate with the level of risk assumed or with a potential

preserving and adding to the investors or subscribers' wealth.

Issue Price: The price of a new security sold to the public, determined by an underwriter or

syndicate.

Leverage: This is the level of debt in a firm, defined here as the total book value of the firms

long and short term debt, divided by the sum of the market value of the equity and the book

value of debt.

Listing Securities: Any stock or bond that has been admitted for trading on the Stock Exchange

and whose issues have complied in every way with the listing requirements of the exchange.

Market Capitalization: It is the market value of a company's issue share capital. It is the

product of the current quoted price of shares and the number of shares outstanding.

Market Value: Is the price the investors are willing to pay for the stock on the Stock Exchange.

Over-the-Counter: An informal network of brokers and dealers who negotiate sales of

securities (not a formal exchange)

Par Value; Is a nominal value agreed upon by both the Nigerian Securities and Exchange

Commission (SEC) and the issuing companies to be the original worth of the share at the time of

first issue.

Payout Ratio: Proportion of net income paid out in cash dividend.

Payment Date: The date the declared dividend is actually paid. Or the date dividend checks are

mailed.

Portfolio: This is the collection of all the securities held by an individual or company.

Primary Market: Is the market where new securities are issued and purchased. The securities

traded here are called primary issues.

Price Placement: Offering of company's stock through private negotiation with investors.

Price-Earning Ratio (P/E): Is the price of a share or stock divided by the earning per share for a

12 month period.

Private Company: Is company which by law has some business restrictions e.g. 50 members

only, shares not transferable et cetera.

Public Company: Is company quoted at the NSE.

Record Date: The date by which all shareholders registered with the corporation will receive the

declared dividend. Or date on which holders of record are designated to receive a dividend.

Right Issue: Are newly issued stocks available exclusively to existing shareholders of a

company to purchase.

Secondary Market; The market for trading existing securities, such as the stock exchange.

Securities and Exchange Commission (SEC): Is an apex regulator institution of the Nigerian

Capital Market: SEC regulate the issues of securities and the conduct of operators/players in the

market, as well as sales practices.

Scrip Dividend: The type of dividend issued by a corporation to its shareholders entitling the

holder or the bearer to receive cash, stock, or a fractional share of stock, or one or more unit of

the product manufactured, upon preservation or a specified future date.

Stock Broker: Is a firm or people who buys and sell securities on behalf of investors for a

commission called brokerage.

Stock Dividend: Is payment made by a firm to its owner in the form of stock, diluting the value

of each share outstanding.

Stock Market; financial market where securities are bought and sold.

Stock Exchange: Is an organized market where buyers and sellers competitively bid and ask for

quoted securities. Thus, stock exchange provides facilities for government, institutions and

companies to raise new or additional funds to finance their activities.

Stock Market Aristocrat; Is a corporation that maintains a good dividend returns and has sound

management and good growth potentials.

Stock Repurchase: Buying back of same company's stock for some business reasons.

Time Value of Money: Is the concept that money in hand worth more than the same amount to

be received at a future date.

Underwriter: Is an insurer who undertakes for a commission to apply for, or all part of the

shares in a new issue which are not taken up by the company.

Unquoted Company: Company which shares are not listed at the Stock Exchange.

Quoted Company: Company which shares are listed at the stock Exchange.

REFERENCES

Asquith P. and D. Mullins (1986), "The Impact of Initiating dividend payments on Shareholders

wealth" Journal of Business, 46: 77 -96

Baye, M. R. and Jansen, D. W. (2006), Money, Banking and Financial Markets: An Economics

Approach: 1 ed, Delhi India, AITBS Publishers and Distributors.

Black, F. (1976), "The Dividend puzzle". Journal of Portfolio Management, 2:5-8, pp. 5-8.

Brown, M. B. and A. B. Forsythe (1974), "Robust tests for the Quality of Variances" Journal of

American Statistical Association, Vol. 69, pp. 364 - 367.

Cohen, R. B., C, Polk and T. Vuolteenaho (2005), "Money Illusion in the Stock Market: the

Modigliani -Cohn Hypothesis", Quarterly Journal of Economics, 120: (2): 639 - 668.

Dielman, T. E. and H. R. Oppenheimer (1984), "An Examination of Investor Behaviour During

Periods of Large Dividend Changes” Journal of Financial and Quantitative Analysis, 19: 197

- 216.

Ekechi, A. 0. (1989), Weak Form Efficiency in the Nigerian Stock Exchange, African Review of

Money, Finance and Banking, 2:.6.

Ezike, J. E. (1985), "On Dividend Policy and Share Price Valuation” Nigerian Journal of

Business Administration, 1, (l): 53.

Fama, E. F., L. Fisher, M. Jensen & R. Roll (1969), The Adjustment of Stock Prices to New

Information, International Economic Review.

Hajiassos, M.and A. Michaelides (2003), Portfolio Choice and Liquidity Constraints,

International Economic Review.

Miller, M. H. and K. Rock (1985), "Dividend Policy under Asymmetric Information", Journal of

Finance, 40: 1031 - 1052.

NSE fact books various years.

Ofer, A. and' D. Siegel (1987), "Corporate Financial Policy, Information, and Market

Expectations: An Empirical Investigation of Dividends", Journal of finance, 42: 889 912.

Okafor, F. 0, (1983), Investment Decisions: Evaluation of Project and Securities, 1 ed, London:

Cassell.

Pandey, I. M. (2005), Financial Management, 9 ed, New Delhi India: Vikas Publishing House

PVT. LTD.

Public Offering and Sales of Securities: A Publication of Securities and Exchange Commission,

(SEC).

Richardson, G., S. Sefcik and Thompson (1986), "A Test of Dividend Irrelevance using Volume

Reactions to a Change in Dividend Policy" Journal of Financial Economics, 17: 313 - 334.

Woolridge, J. B. (1983), "Dividend Changes and Security Prices", Journal of Finance, 38: 1607 -

1615.

CHAPTER TWO

THE REVIEW OF RELATED LITERATURE AND THEORETICAL

FRAMEWORK

2.1 INTRODUCTION

This chapter deals on the review of literature related to the impact dividend payment has on share

prices of various quoted firms equities in Nigeria within the period of 1995-2006. The review

though not exhaustive, traced the meaning of dividend payment and .dividend policy analyzing it

critically on both side i.e. both the theoretical review and empirical analysis. More so, this

chapter deals with the concept of Nigeria Stock Exchange (NSE) it's history, functions and other

activities the exchange performs, stock price valuation, efficient market hypothesis et cetera.

2.2 THEORETICAL FRAMEWORK

The first step towards understanding dividend payment is to recognize that the phrase means

different things to different people; therefore, we must start by defining what is meant by the

term ‘dividend.’

The term dividend are cash paid out of earnings, and if a payment is made from sources other

than current or accumulated retained earnings, the term distribution rather than dividend is used.

It is acceptable to refer to a distribution from earnings as a dividend and a distribution from

capital as a liquidity dividend.

A firm's decisions about dividends are often mixed up with other financing and investment

decisions. Some firms pay low dividends because management is optimistic about the firm's

future and wishes to retain earnings for expansion. In this case, the dividend is a by-product of

the firm's capital budgeting decision.

Why shareholders often clamour for higher dividends is that they don't trust managers to spend

retained earnings wisely and they fear that the money will be plowed back into the building of a

larger empire rather than a more profitable one. In a case like this dividend decision is mixed up

with the firm's investment and operating decision, the dividend increase may lead to a rise in the

stock price not because investors like dividends but because they want management to run a

tighter ship.

Retained earnings are one of the most significant sources of funds for financing corporate

growth, but dividend constitutes the cash flows that accrue to stockholders. Although, both

growth and dividend are desirable, these two goals are in conflict - a higher dividend rate means

less retained earnings and, consequently, a slower rate of growth in earnings and stock prices

(Brealey and Myres 1996:417,429; Weston and Brigham 1977: 463).

Dividend policy determines the amount of earnings retained by a corporation verses the amount

of earning paid to share-holders. It could involve the decision to pay out earnings or to retain

them for investment in the firm. While dividend itself are paid out of the earnings generated by

the firms assets. It represents a direct payment to shareholders out of the company's earning.

The important aspect of dividend policy is to determine the amount of earnings to be distributed

to shareholders and the amount to be retained in the firm. Retained earnings are the most

significant internal source of financing the growth of the firm. On the other hand, dividend may

be considered desirable from shareholders point of view as they tend to increase their current

return. Dividend, however, constitutes the use of the firms fund (Pandey 2005:379).

In theory, the objective of dividend policy should be to maximize a shareholders return so that

the value of his investment is maximized. Shareholders returns consist of two components:

dividend and capital gains. Dividend policy has a direct influence on these two components of

return.

A low payout policy might produce a higher share price because it accelerates earnings growth.

Investors of growth companies will realize their return mostly in the form of capital gains.

Dividend yield (dividend per share divided by market price per share) will be low for such

companies. The impact of dividend policy on future capital gain is, however, complex. A capital

gain occurs in distant future, and therefore, many people consider that as uncertain. It is not true

that low payment policy will necessarily leads to higher prices in reality. It is quite difficult to

clearly identify the effect of payout on share price. Share price is a reflection of so many factors

that the long-run effect of payout is quite difficult to isolate.

A higher dividend means more current dividends and less retained earnings, which may

consequently result in slower growth and perhaps lower market price per share. To be precise,

capital gains are future earnings while dividends are current earnings. In some countries,

dividends are taxed more than capital gains. That is mainly the reason why some investors would

prefer high-payout companies while others may prefer low-payout companies.

The cash available for the payment of dividends is affected by the firm's investment and

financing decision. If a firm's value is affected, it is because of the investment decision or

dividend decision? Given the firm's capital expenditure, and that it does not have sufficient

internal funds to pay dividends, it can raise funds by issuing new shares. In this case, the

dividend decision is not separable from the firms financing decision. A dividend decision

involves a trade-off between the retained earnings and issuing new shares. It is essential to

separate the effect of dividend changes from the effects of investment and financing decision.

(The work of Pandey 2005: 379-381) went further to shape the objective of dividend policy in

two possible view points as: (i) firms need for funds, and (ii) shareholders need for income. In

the later, i.e., firms need for fund; he was of the opinion that when dividend decision is treated as

a financing decision, the net earnings of the firm may be considered as a source of long term

funds. Hence, dividend will be paid only when the firm does not have profitable investment

opportunities. The firms grow at a faster rate when it accepts higher profitable investment

projects. External equity could be raise to finance investments. But retained earnings are

preferred because, unlike external equity, they do not involve any floatation costs. The

distribution of cash dividends causes a reduction in internal fund available to finance profitable

investment opportunities and consequently, either constrains growth or reduces the firms to find

other costly source of financing. Thus, firms may retain their earnings as a part of long-term

financing decision. The dividend will be paid to shareholders when a firm cannot profitably

reinvest earnings with this approach; dividend decision is viewed merely as a residual decision.

The other view on the objective of dividend policy is shareholders need for income, because of

market imperfections and uncertainty, shareholders may prefer the near dividend to the future

dividend and capital gains. Thus, the payment of dividends may significantly affect the market

price of the share. Higher dividend may increase the value of the shares and low dividend may

reduce the value, among others.

2.3 TYPES OF CASH DIVIDEND

Four broad several different forms in which cash dividend comes are identified by Ross et al

(1999:381-382) which include:

(A) Regular Cash Dividend: Is cash payments made directly to shareholders and they are made

in the regular course of business. It is the most common type of dividend.

(B) Extra Dividend: By calling part of the payment ‘extra’ management is indicating that it may

or may not be repeated in the future. Extra dividend is simply extra cash paid to regular

dividends.

(C) Special Dividend: Is an unusual dividend paid to stockholders out of earnings or onetime

event and won't be repeated.

(D) Liquidating Dividend: Means that some or all of the business has been liquidated, that is

sold-off.

2.4 DIVIDEND VALUATION MODEL

The current price of a share may be defined as the present value of the expected future receipts

discounted at the investor's marginal rate of time preference.

The current price of a share is given by:

Po = D1 + D2 + D3 - - - D� ..........................................................(2.0) (1+r)1 (1+r)2 (1+r)3 (l+r) �

Where: D1 D2 - - - D� are the dividend paid on the share of times 1,2,3, - - - �

r is the return require by the investor on the share.

Dividend on ordinary shares are expected to grow overtime. Equation (2.0) can be restated to

include the constant growth rate that may be reasonably expected. The current price of a share

would be given by:

Po = D(1+g)1 + D(1+g)2 + D(1+g)3 - - - + D(1+g)� ................................ (2.1) (1+r)1 (1+r)2 (1+r)3 (1+r)�

Where g is the contestant growth rate, and d is the dividend paid on the share at time t = 1

Equation (2.2) is an infinite series and therefore can be simplified to:

=

Po D rh ------------------------------------------------------------------- (2.2)

r-g

Equation (2.0 - 2.2) gives a theoretical relationship between the price of a share and dividend. It

is claimed that the prominent role of dividend is reflected in the fact that an ordinary share is

worth the sum of all the dividends to be paid on It in the future, each discounted to its present

worth. But the viewpoint is a highly disputed one (Anyafor, A. M. O. 1982:96-97).

2.5 KINDS OF DIVIDEND POLICY

Most organized firms refrain 'from arbitrary paying of dividends just out of the intuitions of the

Board of Directors (BOD), so they normally make policies and abide by them as much as

possible. The advantage of having a dividend policy is that it helps investors to project or predict

what to expect as dividend for the year. Van Home (1977) classified dividend policy into

basically four main types:

1. Dividend as a Fixed Percentage of Earning: A firm can decide to be paying 40% of it's

earnings as dividends every year. So during good years, investors enjoy high dividend but

during depression, the dividend falls proportionately, since it will fluctuate with the

earnings of the company. Prediction of dividend will be as tough as predicting the

company's earnings.

2. Stable Dividend Overtime: A company may decide to maintain stable dividend over the

years no matter the performance of the company with the particular year. For instance, a

company may decide to be paying 20k per share irrespective of the earnings per share for

that year. In a case where the earning per share goes below 20k, the company will have to

compensate from the reserves of the previous years.

3. Target Payout Ratio: Here the firm maintains a stable dividend but steps up the dividend

only when the earnings trends has proved that the earning will be permanently higher than

those of the previous years.

4. Regular and Extra Dividend: Some company pays regular amount of dividend yearly but

pays "Extra dividend" in every good years. This is a safety device on the part of the

company, in that they enjoy the glory of paying extra dividends in boom periods and can as

well step down their dividends in bad period without the public interpreting it as been so.

All they do is to skip off the extra dividends and say the company pays its regular dividend.

2.6 FACTORS INFLUENCING DIVIDEND POLICY

Weston and Brigham (1977:463-466); van Home (1977); and Mba (1977) listed factors that

determine dividend policy as:

1. Legal Rules: The legal rules provide that dividends must be paid from earnings, either

from the current years earnings or from past year's earnings as reflected in the balance sheet

account "retained earnings". Legal aspects are significant. They provide the framework

within dividend policies can be formulated. With which boundaries, however, financial and

economic factors have a major influence on policy.

2. Liquidity Position: A growing firm, even if very profitable one typically has a pressing

need for funds (like using the retained earnings from preceding year in plant and

equipment, inventories and other assets). In such a situation the firm may elect not to pay

cash dividends because of its liquidity position.

3. Need to Repay Debt: When a firm has sold debt to finance expansion or to substitute for

other forms of financing, it is faced with two alternatives: it can refund the debt at maturity

by replacing it with another form of security, or it can make provision for paying off the

debt. If the decision is to retire the debt, this will generally require the retention of earnings.

4. Restriction in Debt Contracts: Debt contracts, particularly when long-term debt is

involved, frequently restrict a firm’s ability to pay cash dividends. Such restrictions, which

are designed to protect the position of the lender, usually state (i) that future dividend can

be paid only out of earnings generated after the signing of the long loan agreement (that is,

future dividend cannot be paid out of past earnings generated after the signing of the loan

agreement) among others.

5. Rate of Asset Expansion: The more rapid the rate at which the asset is growing, the greater

will be its needs for financing asset expansion. The greater the future needs for funds, the

more likely the firm is to retain earnings rather than pay them out.

6. Profit Rate: The rate of return on assets determines the relative attractiveness of paying

earnings in the form of dividends to stockholders who will use them elsewhere, compared

with the productivity of their use in the present enterprise.

7. Stability of Earnings: If earnings are relatively stable, a firm is better able to predict what

its future earnings will be. A stable firm is therefore more likely to pay out a higher

percentage of its earnings than is a firm with fluctuating earnings. The unstable firm is not

certain that in subsequent years the hope for earnings will be realized, so it is more likely to

retain a high proportion of earnings in order to maintain dividends if earnings should fall

off in the future.

8. Access to the Capital Markets: A large well established firm with a record of profitability

and some stability of earnings will have easy access to capital markets and other forms of

external financing. The small, new or venturesome firm, however, is riskier for potential

investors. Its ability to raise equity or debt funds from capital market is restricted, and it

must retain more earnings to finance its operations. A well established firm is thus likely to

have a higher dividend payout rate than is a view or small firm.

9. Control: Another important variable is the effect of alternative source of financing on the

control situation in the firm. Some corporations, as a matter of policy, will expand only to

the extent of their internal earnings. This policy is defended on the ground that raising

funds by selling additional common stock dilutes the control of the dominant group in the

company. At the same time, selling debt increases the risk of fluctuating earnings to be

present owners of the company. Reliance on internal financing in order to maintain control

reduces the dividend payout.

10. Tax Position of Stockholders: The tax position of the owners of the corporation greatly

influences the desire for dividends. At times there is a conflict of interest in large

corporations between stockholders in high income tax brackets and those in low brackets.

The former may prefer to see a low dividend payout and a high rate of earnings retention in

the hope of an appreciation in the capital stock of the company. The lower income

stockholders may prefer a relatively high dividend payout rate. The dividend policy of such

a firm may be a compromise between a low and a high payout – an alternative payout ratio.

11. Tax on Improperly Accumulated Earnings: Tax is done on improperly accumulated

earnings in order to prevent wealthy stockholders from using the corporation as an

"incorporated pocketbook" by which they can avoid the high rate of personal income tax.

Furthermore, in decision making by Board of Directors on the retention of earnings and

their use as the basis of dividend distributions, three important factors are involved:

i. Liquidity needs

ii. Cash requirement for growth and

iii. The position of the stockholders (Kent, 1970:650-654).

12. Inflation: During inflation the replacement cost of assets rises sharply and those provision

for depreciation might no longer be sufficient to replace the worn-out assets under such a

situation, it becomes wise to reduce dividend payouts so as to have enough retain earnings

to replace them.

13. Corporate Image: Competition among companies in the same industry may make the

management adopt a dividend policy that will portray them as been successful as to

enhance its corporate image.

2.7 DIVIDEND POLICY ANALYSIS: A CASE OF L&T LTD

Pandey (2005:408-409) used financial data for L&T LTD from 1990-2003 period to analyze the

company's dividend policy as thus:

Table 2.0 L&T is EPS, DPS and other financial data

Year EPS Rs DPS RS Payout % P/E times DY % EY% Price Rs

March – 90 6.3 2.3 37.2 13.0 3.1 7.7 82.0

March – 91 9.4 3.0 31.8 12.0 2.7 8.3 112.5

March – 92 9.8 2.4 30.8 49.9 0.9 2.0 390.1

March – 93 5.6 3.3 57.6 31.5 2.0 3.2 177.7

March – 94 9.2 4.0 44.0 29.4 1.5 3.4 269.9

March – 95 12.1 4.8 39,5 21.5 1.9 4.7 259.9

March – 96 13.4 5.6 41.4 18.0 2.5 5.6 242.1

March – 97 16,6 6.0 36.3 12.1 3.0 8.3 199.9

March – 98 21.4 6.5 30.4 11.4 2.7 8.8 243.0

March – 99 18.9 6.5 34.4 12.4 2.8 8.1 233.9

March - 2000 13.7 6.5 47.4 20.9 2.3 4.8 287.4

March - 2001 8.9 6.5 73.5 25.0 2.9 4.0 221.2s

March - 2002 16.5 7.0 42.5 11.0 3.9 9.1 180.8

March - 2003 17.4 7.5 43.1 10.6 4.1 9.4 184.7

Average 12.7 5.1 42.2 19.9 2.6 6.2 220.4

SOURCE: Pandey I. M. (2005: 408) Table 18.1

Figure 2.0: L&T EPS and DPS during 1990 - 2003

0

5

10

15

20

25

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

x

Year

EPS

DPS

Behaviour of EPS, DPS

L&T's EPS has grown faster than it's DPS, EPS has shown wide fluctuations, while DPS has

been slowly and steadily growing. Consequently, dividend payout ratio shows wide variation-

ranging between 30 per cent in 1992 - 74 per cent in 2001.

Figure 2.1: L&T Payout Ratio, 1990 – 2003

Behaviour of Payout

The average payout during 1990 - 2003 is 42 per cent.

0

10

20

30

40

50

60

70

80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

YU

year

Figure

2.2: L & T is share price behaviour 1990 – 2003

Behaviour of Share Price

Figure 2.3 show that L & T's share price after reaching peak in 1992, has been fluctuating within

a narrow range. There does seem to be significant correlation between L&T's share price and

EPS & DPS or payout ratio.

Figure 2.3: L&T Earning and Dividend yield 1990 – 2003

0

50

100

150

200

250

300

350

400

450

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Sha

re P

rice

Year

0

2

4

6

8

10

12

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

YU

Year

DY

EY

Earning and Dividend Yields

L&T's dividend yield declined from 1990 to 1993, and after that, it has been increasing except in

1994 and 2000. it has, however, remained below 3 per cent. The average dividend yield from

1990 to 2003 is 2,6 per cent. L&T's earning yield show a high decree of variability. It peaked to

9.4 per cent in 2003. The average earning yield during 1990 to 2003 was 6.2 per cent.

2.8 DIVIDEND PAYMENT AND STOCK REPURCHASE

Instead of paying cash dividend some financial analyst (like; Ross et al 1996) are of the opinion

that a firm can rid itself of excess cash by repurchasing shares of its own stock, as it is an

important way of distributing earnings to the shareholders. Adding that the repurchase of stock is

a potentially useful adjunct to dividend policy when tax avoidance is important.

In the issue of repurchase as investment, they said that many company buy back stock because

they believe that a repurchase is their best investment. That is, occurs more frequently when

managers believe that the stock price is temporally depressed. Hence, it is likely thought that (i)

Investment opportunity in non financial asset are few, and (ii) the firms own stock price should

rise with the passage of time. And the fact that some companies repurchase their stock when they

believe it is undervalued does not imply that the management of the company must be correct.

On the other hand, stock dividends and stock splits is another type of dividend paid out in shares

of stock, though not a true dividend because it is not paid in cash and effect of a stock dividend is

to increase the number of shares that each owner holds. Since there are no more shares

outstanding, each is simply worthless.

2.9 OPTIMAL DIVIDEND POLICY

The study to prove the irrelevance of dividend policy was done by Modigliani and Miller (1961).

The paper M&M enumerated that in a world with no taxes or transaction costs and where

everyone was fully informed about the distribution of the firms uncertain future cash flows. Once

corporate and personal income taxes where introduced, then the theory suggested that perhaps it

would be optimal to pay no dividends at all because of tax disadvantage of ordinary income over

capital gains. Miller and Scholes (1978) modified this point of view and demonstrated how

dividend income could, to a large extent, be sheltered from taxation. Theories, which seek to

explain benefits as well as cost of dividend payout, in an effect to evolve a theory of optimal

dividend policy, abound in the finance literature. According to Copeland and Weston (1988),

these theories could be grouped into three: theory based on taxes and investment opportunities,

theory based on the informativeness of dividend payout (information signaling) and agency cost

and sourcing cost of funds (see Ross 1977; Bhattacharya, 1979; Copeland and Weston, 1988:

561 - 572; Veronesi, 2000; Grullon and Michealy, 2002; and Pastor Veronesi, 2003). Rozeff in

1982 reports strong cross-sectional regularities in dividend payout. Accordingly, there might be

optional dividend policies that result from the trade-off between cost and benefit of paying

dividends. The list of possible cost includes (i) tax disadvantage of receiving income in the form

of dividends rather than capital gains, (ii) the cost of raising external capital if dividends are paid

out, and (iii) the foregone use of funds for productive investment.

The possible benefits of dividend payout are (i) higher perceived corporate value because of the

signaling contents of dividends, (ii) Lower agency cost of external equity, and (iii) the ability of

dividend payments to help complete the markets (Copeland and Weston:573). Specifically,

Rozeff hypothesized a relationship between dividend payout and five proxy variables as below:

DP = �o – �1 INS – �2 GROW1 – �3 GROW2

- �4 BETA + �5 STOCK ……………………..............................................(2.3)

Where Dp represents dividend payout ratio, INS represents the percentage of insiders, GROW1

represents the actual growth rate in the revenues within the study period, GROW2 indicates

value line's forecast of the growth of sales revenue. GROW1 and GROW2 are and attempt to

measure the impact of costly external financing. The variable INS and STOCK are proxies for

agency relationship. Stock represents the number of shareholders. BETA represents measures the

riskiness of the firm. Of course, �0, � , ……, � 5 represents the parameters of the regression. The

result obtained are consistent with his predictions, though cannot be used to distinguish among

the various theories of optimal dividend policy. A more recent study by La Porta, et al (2000) is

consistent with the Rozeff model. Specifically, La Porta, et al states that the relationship between

agency costs and dividend policy rest on the stringency (or otherwise) of a country's law on

corporate policies especially in connection with managements over investment and empire

building.

2.10 INFORMATION CONTENT OF DIVIDEND

It is contended that dividend are relevant because they have information value. A company can

make statements about its expected earnings growth to inform shareholders in order to create a

favourable impression on them. However, these statements would be paid better attention if they

follow with a dividend action - a disbursement of cash payment for dividend conveys to

shareholders that the company is profitable and financially strong. When a firm changes it's

dividend policy in a significant manner, investors assume that it is in response to an expected

change in the firms profitability which will last long. An increase in payout ratio signals to

shareholders a permanent or long-term increase in firms expected earnings. It is, therefore, argue

that the announcement of changes in dividend policy influences share prices, and that managers

use the dividend changes to convey information about the future earnings of their companies.

They may also influence the perceptions of the investors about the risk of the company which

follows a stable dividend policy. This sort of argument is also known as the dividend-signaling

hypothesis (Pandey 2005:391). Solomon contends that dividend may offer tangible evidence of

the firms ability to generate cash, as a result, the dividend policy of the firm may affect the share

price.

The dividend signaling hypothesis implies that the most valuable dividend policy is the one that

provides information that cannot be effectively communicated through other means. MM accept

the informational content of dividends. They contend that the price of the share is determined by

expected future earnings and the firm's investment policy and not by the dividends. They argue

that the informational value of dividends indicates that they are merely a reflection of the firm's

investment policy and the expected earnings and do not have any impact on the value in their

own accord.

The above discussion on market imperfections indicates that shareholder may not be indifferent

as to how the earnings of the firms are divided between dividends and retained earnings. The tax

differential effects and the presence of floatation costs favours the capital gain resulting from the

retention of earnings, while the existence of transaction costs, agency costs, information

asymmetry and desire for current income and diversification favour the payment of dividends.

The dividend policy may also become relevant because of the information content of dividend.

Bhattacharya (1979), Benartzi, et al (1979), Brickley (1983), Aharony and Swary (1980),

Woolridge (1982, 1983) Handjincolaou and Kaley (1984), DeAngelo, et al (1996, 2000),

Dewenter and Warther (1998), Comrad, et al, (2003), Grullon, et al, (2002), et cetera. All these

carried out empirical studies on the information contend of dividend hypothesis.

The validity of the dividend information hypothesis hinges on the belief that a firms management

often possesses privilege information about the firm's future earnings potential and

communicates this to the general investment community by altering the expected dividend. The

difference between the actual dividend declared and that "expected" by the market i.e., the

expected change in dividends, purportedly is a signal that investors use to reassess their estimate

of a security value.

Handjinicolaou and Kaley (1984) and Woolrigde (1983) have argued that one cannot infer that

dividend increases convey position information about the firm by examining share price alone,

since unexpected dividend increases could cause wealth transfer from bondholders to

shareholders by reducing the asset base of the firm (expropriation argument). Therefore, the

observed increase in share price is consistent with both wealth redistribution and positive

information.

2.11 LIFE CYCLE GROWTH AND DIVIDENDS

One of the major influences on dividend is the corporate growth rate in sales and the subsequent

return on assets. Figure 2.4 shows a corporate life cycle and the corresponding dividend policy

that is most likely to be found in each stage.

Growth

Maturity

Sales N

Decline

Stage I No cash div

Stage II Stock div

Low cash div

Stage III Stock div & Expansion

Moderate cash div

Stage IV High cash div

Time

A small firm in the initial stage of development,(stage I) pays no dividend because it needs all of

its profits (if there are any) for reinvestment in the new productive assets. If the firm is successful

in the market place, the demand for its products will create growth in sales, earnings, and assets,

and the firm will move into stage II. At this stage, sales and returns on assets will be growing at

an increasing rate, and earning will still be reinvested. In the early part of stage II, stock

dividends (distribution of additional shares) may be instituted, and in the later part of stage II,

low cash dividends may be started, to inform investors that the firm is profitable but that the cash

is needed for internal acquisition.

After the growth period in the firm enters stage III. The expansion of sales continues, but at a

decreasing rate, and returns on investment may decline as more competition enters the market

and tries to take away the firms market share. During this period the firm is more and more

capable of paying cash dividends, as the asset expansion rate slows and external funds become

more readily available. Stock dividends and stock splits are still common in the expansion phase,

and the dividend payout ratio usually increases from a low level of 5 to 15 percent of earnings to

a moderate level of 25 to 40 percent of earnings. Finally, at stage IV, maturity, the firm

maintains a stable growth rate in sales similar to that of the company as a whole and when risk

premium are considered, it returns to assets level out of those of the industry and the economy.

In unfortunate cases, firms suffer declines in sales of product innovation and diversifications

have not taken place over the years. In stage IV, assuring maturity rather than decline, dividend

might range from 40 to 60 percent of earnings. The percentage will be different from industry to

industry, depending on the individual characteristics of the company, such as operating and

financial leverage and the volatility of sales and earnings over the business cycle.

2.12 CONSISTENCY OF DIVIDENDS

Public companies and their boards typically starts issuing regular dividend payments to common

shareholders once their companies have reached a significant size and level of stability. Often,

young, fast-growing companies prefer not to pay dividends, opting instead to re-invest their

retained earnings into their business operations, compounding their growth and thus the book

value of their shares over time. However, once a company does decide to start paying a specified

amount of money to shareholders in the form of regular cash dividends, its stock usually trades

with a little less price volatility in the market.

Secondly, companies know that the stock market reacts very poorly to stocks that reduce their

dividend payments. Thus, once a company begins paying a regular dividend amount, it will

generally do everything it reasonably can do to continue paying that dividend. This gives

investors high confidence that the dividend payments will continue indefinitely at the same

amount or greater, and thus the shares of dividend paying stocks tend to be viewed as quasi-bond

instruments: they pay a regular cash flow that is backed by the entire financial strength of the

company, but they also allow investors to participate in any share price gains the stock may

enjoy.

Given both of these factors, the market tends to be less likely to drive down the share prices of

stock that pay high dividends than those of companies that they pay no dividends. This means

that stocks that pay sizable, regular dividends usually trade in the market with less volatility than

stocks that don't pay dividends. Of course, this is not a hard and fast rule, but on average it holds

true.

A portfolio of high dividend yielding stock has consistently shown itself to outperform the

broader market in the long-run and without the same degree of volatility associated with growth

stocks. The strategy involves finding consistently high yielding stocks which provide an income

of 5% or more on top of capital appreciated, this dividend is also likely to rise so as to maintain

the yield on any gain in the share price, so as to maintain the yield %

2.12.1 Empirical Studies: A Case of UK United Utilities

Taking a popular high yielding stock, United Utilities listed both on the London Stock Exchange

(LSE) and the New York Stock Exchange (NYSE). In this case, looking back at the historic yield

of dividends payments over the last 6 years United Utilities has always provided a high dividend,

which has been as high as 8%. Dividend for financial year ending 31st March (UK.

Pence/Shares)

2006 - 44p

2005 - 45p

2004 - 44p

2003 - 47p

2002 - 47p

2001 - 46p

What the table above shows is the consistent dividend of about 45p, where the yield has

fluctuated due to the rise or fall in the stock price, which has seen the yield above 8% and the

low being the current yield of 5.4% due to a recent surge in the stock price. An analysis of

dividend payments also shows little or no growth in the dividend in some 6 years! So at best UU

is expected to maintain a 45p to 47p dividend for the foreseeable future, so lacks future growth in

dividends which is likely to constrain future growth in the share price, as if the stock does rise

further, this will force the yield lower as there is not expectation of the company raising its

dividend on a year on year basis. Therefore United Utilities only partially passes the consistency

test, what I would like to see in a stock is year on year growth in the dividend paid.

2.12.2 The Dividend Cover

This is the second important test when looking for a potentially yielding stock. The dividend

cover expresses the number of times dividend could have been paid from profits (EPS) i.e. if the

dividend cover is 3, this means that the firm's profit attributable to shareholders was three times

the amount of dividend paid out. The higher the dividend cover the better, as the company is

more likely to maintain the dividend in future years even if profit drop. A low dividend cover,

especially near 1, means the company will struggle to meet the dividend in the corning year. The

validity of this statement has been proved in empirical studies of UK United Utilities Company

whose shares are listed both on the London Stock Exchange (LSE) and the New York Stock

Exchange (NYSE).

Summarily, a dividend yield is an easy way to compare the relative attractiveness of various

dividend- paying stocks. It tells an investor the yield he/She can expect by purchasing a stock.

This allows a basis of comparism between other investments, such as bonds, certificates of

deposits et cetera.

To calculate dividend yield, divide the .annual dividend by the current stock price:

It is expressed thus:

Current dividend yield = Annual dividend ---------------------------------------------- (2.5) Current stock price

In conclusion, just because a stock has a high yield today, does not mean it will be so in the

future, look at the consistency of dividend payments and the dividend cover for indicators of

continuing payment of high dividends going into the future. The dividends should also increase

year to year.

2.13 DIVIDEND PAYOUT RATIO

A company should reinvest its earnings if the prospective returns are greater than its

shareholders’ cost of capital or required rate of return. Changes in dividend policy should reflect

the company's investment opportunities. However, dividend policy can change in this way only

if shareholders are indifferent to distinctions between dividends and capital gains.

If capital markets are competitive, and there are no taxes, no transaction or flotation costs, then

investors would be indifferent to the level of dividend payout. Any reduction in dividends would

lead to a greater reinvestment of retained earnings and an equivalent increase in capital gains.

Company operations in this situation would not be affected by the dividend payout ratio, because

if retentions were insufficient to finance the company's investment programme, a rights issue

could be made. If the dividend paid was insufficient for the shareholder's income requirements,

then he could sell a proportion of his holding to compensate for inadequate income. Similarity, if

the dividend paid was in excess of his income requirements; he could reinvest the surplus in the

company's shares. This argument has been given rigorous support by Modigliani and Miller. The

claim that in competitive capital market shareholders could always reinvest surplus income or

sell part of their capital in order to consume. Whether such income was received in the form of

dividends or capital gains was mere packaging.

It has been argued that, under conditions of uncertainties, the shareholder is not indifferent to the

split between dividend and retentions (the profitable reinvestment of retained earnings increases

the share price). This is because dividends are more certain than capital gains. It is believed that

shareholders prefer to reduce uncertainty and hence are prepared to pay a higher price for a share

that offers a greater current dividend compared to one of the same risk class that offers a lower

dividend. Thus the rate of return required by shareholders would rise with the percentage of

earnings retained; put another way, a shareholder would prefer a company that pays high

dividends to one that pays low dividends, other things being equal. On this basis the cost of

retentions would increase, the greater the retention rate.

Associated with this argument in the fact that dividend has an effect on share price because they

communicate information about the company's profitability. If a company has had a stable

dividend payment policy and this policy is altered, shareholders could interpret this as a change

in managements expectations of the future and the share price may adjust accordingly: for

example, a reduction may be construed by the shareholders as indicating management's

pessimistic view of the future, rather than greater investment opportunities. If there is stability in

the dividend payment, investors may rely upon dividends as predictors of what is to come.

However, it can be argued strongly that management should be able to persuade shareholders

that lower dividends - that is, greater retention - will lead to a more .profitable investment policy

and will benefit future earnings and dividends. If shareholders accept this, the share price will

not fall as a result of such a change in dividend policy.

2.13.1 Empirical Studies

Most studies on share price movement suggest that the dividend payout does affect the value of

the firm, Graham and Dodd concluded that a dollar of dividends has four times the average

impact on share price as a dollar of retained earnings. Several other studies have shown that: the

impact of dividends on share price is greater than that of retentions, although the size and

differences varies considerably from Industry to Industry and from year to year. However,

surveys of investors’ opinion suggest the reverse. Friend and Parker found that investors who say

a change in corporate earnings would influence their Investment decision outnumbered by 3:1

those who would be influenced by a change in dividends. In a later survey Merrill lynch found

that not only did the majority of the respondents place capital appreciation at the head of their list

of objectives, but the emphasis placed upon it varied according to their income. The evidence of

this effect of dividends and retention on share price is in conclusive.

Dividend payout ratio can be calculated as thus:

Dividend payout ratio = Total dividend payments ----------------------- (2.4) Total earnings for the same period

In another way, since the payout ratio is the percentage of a company's profit that is paid out to

investors as a dividend. If a business made N1,000,000.00 and paid N500,000.00 as dividends,

the payout ratio would be 50%. Finally, the dividend payout ratio is defined as the ratio of

common dividends to net income before extraordinary items:

Payout Ratio = Divt -------------------------------------------------- (2.5) N1

2.14 MAGNITUDE OF DIVIDEND

The payment and magnitude or sizes of dividends have long been a matter of debate in corporate

finance. Under condition of symmetric information and taxes, dividends have been dubbed a

puzzle (Black, 1976). Several authors model dividend policy under the assumption that

information is distributed asymmetrically between managers and investors. Bhattacharya (1979,

1980) argues that firms pay dividends because dividend signals the private information of

managers and thus help market participant’s value the firm. Ambarish et al. (1987) suggested

that high-value firms choose investment and dividends jointly to separate themselves from low-

value firms. John and Williams (1985) and Ambarish et al. (1987) predict a positive association

between dividends and stock prices. Miller and Rock (1985) argue that once the investment

decision of a firm is made, unanticipated dividend signal changes in earnings and cash flows.

These models differ in the detail of their assumptions and approach, but reach the same broad

conclusion: firms pay dividend to convey information to investors that cannot be conveyed

costless and credibly in other ways.

One of the key implications of theoretical model of information content of dividend changes is

that dividend changes should be followed by changes in profitability (earnings growth rates or

return on assets) in the same direction. Benartzi, Michaely, and Thaler (1997) BMT henceforth)

test this implication in a recent paper and finds that the earnings growth rates of firms that

increase dividends do not subsequently increase. Firms that decrease dividends on the other

hand, experience significant increase in earnings growth rates in the two years following the

dividend decrease. The price reaction to dividend increases and dividend decreases suggests that

investors interpret these changes as positive or negative news, as the case may be, about the firm.

If the positive or negative news is not about changes in future profitability however, what else

could it be? One possibility is that dividend changes convey information about changes in

discount rate. By definition, fundamental news about a firm has to be either about its cash flows

or about its discount rates. If the good news in a dividend increase is not about future cash flows

then it may be about systematic risk.

2.15 STOCK TRENDS ANALYSIS

Charles Dow a technical analyst states that "that market is always to be considered as having

three movements, all going at the same time". The first is the narrow movement from day to day.

The second is the short swing, running from two week to a month or more: the third is the main

movement, covering at least four years in the duration. The Dow Theory is used to forecast

movements of the entire stock market like: individual share price movement, future market

movements by examining the past and current behaviour.

The three movements in the Dow Theory are:

a) Primary Movements: This indicates the general direction in which share prices are moving

over a long period - stretching from one to ten years. It is usually characterized by a rising

trend signifying a bull market (an upward swing) and a falling trend signifying a bear

market (a downward swing).

b) Secondary Movements: The primary trend is composed of a series of secondary trends

which may last for a few weeks or for several months and which need not necessarily be in

the same direction as the primary trend. In fact, they will frequently be in the opposite

direction, for in the course of an upward primary trend there may be numerous intermediate

downward reactions, each of which retraces a substantial proportion of the preceding rise.

After each reaction price recovers and goes to surpass the previous high. Dow Theorist keeps on

the alert for a recovery which falls short of the previous high. If, following such an abortive

recovery, a downward reaction pierces the low point of the last previous reaction; evidence is at

hand that the market has gone into a major primary downward trend. This is illustrated

diagrammatically in figure 2.6.

c) Daily Fluctuation: This constitutes the tertiary trend, and depicts the fluctuations in share

prices over a period of days or weeks. As the graph of the tertiary trend covers such a short

period the fluctuation are relatively wide and it is normally very difficult to determine the

direction of the trend. For thus reason, Dow Theorists conclude that market movement

cannot be depicted on the basis of daily jiggling. They could be very deceptive hence

should be ignored.

2.16 DIVIDEND ANNOUNCEMENT ON SHARE PRICES

Dividend announcement (very important phenomenon in security valuation) affects stock prices:

The model is modified as thus:

E (Rst + 1) = Rf + B (t + 1) + (E(Rm, t + 1 – Rft + 1) ………………………(2.6) Øt Øt Øt

Where: ERs = Expected return on security.

RM = The return from the market as a whole.

B = The beta factor of the individual security i.e. the risk of actual returns from the

individual security varying from market return.

Beta = The slop

Abortive Recovery

Penetration of previous Reaction low

Time

Money Value N

Figure 2.5: Diagram of a Dow Theory Bear Market Signal.

Adopted from: Anyafo, A.M.O. (1982 – 29)

Rf = The risk free rate of return.

This in essence means that the expected returns on the asset conditional upon dividend

announcement (�t) is equal to the risk free returns plus the product of excess return on the

market portfolio conditional dividend announcement and the estimated beta factor of the asset.

The properties of the model makes it useful in the measurement of the responsiveness of share

prices to dividend announcement in the capital market. This study is necessary because proper

price of securities tend to strengthen investors' confidence in a company's securities and also

increase their willingness to invest more funds in the company. Such proper pricing can only be

possible when share prices reflect all available information about the security.

2.17 SCHOOL OF THOUGHT OF DIVIDEND: EMPIRICAL EVIDENCE

In recent times empirical literatures of various writers has adduced the movement of stock prices

on the stock exchange to earnings, trading volume, dividend or general economic conditions, et

cetera. The question now is which of these factors has the greatest impact or relevance to share

price movement? For quite sometimes, this questions has generated a lot of controversies

amongst financial theorists like Gorgon, Walter, Modigliani, Miller, Ezra etc. this led to the

emergence of two distinctive groups: dividend relevance and dividend irrelevance groups.

2.18 ARGUMENT FOR THE RELEVANCE OF DIVIDEND

The dividend relevance group believes that under conditions of uncertainty, investors are not

indifferent as to how the earnings stream is split between dividends and retained earnings.

Williams (1938:6) was one of the earliest protagonists of the view that dividends were all that

mattered. He stated rather sarcastically in his book, 'The theory of investment value':

A cow for her milk

A hen for her eggs

And a stock, by heck

For her dividend

Williams' prime contention is that the sole reason for an investor to purchase shares for a

common stock is to receive future income. Income to shareholders consists of dividends, capital

gains or losses upon shares. Thus if dividends are forth coming presently then the value of equity

investment is calculated on the basis of the discounted value of those future dividends and capital

gains. He therefore, asserts that over long period stock prices reflects the present value of the

expected dividends.

Waiter (1956:3l) argued that dividend policy should be dependent on the investment opportunity

available to the company or firm. He was of the opinion that so long as there are investments

opportunities from which the firm can earn rate of return (r) which is higher than the firms

weighted average cost of capital (Ko) the firm should pay no dividend to it's shareholders. But if

there are no such opportunities, the firm should payout only a part of its profits.

Judging Walter's suggestions, he tends to highlight the information content of dividends. That is,

the payment or omission of dividend by a firm is a means of announcing to the public what the

firm's future will look like. A firm that pays dividend will be looked like as a weak firm with

little or no future prospect and vice-versa. Going further, Walter (19'63:380) came up with model

explaining how dividend policy effect the value of a share in the stock exchange:

p D + r(E – D) K --------------------------------------------------------------- 2. 7 K K

Where:

P = Market price per share

K = Cost of capital

E = Earnings per share

D = Dividend per share

r= internal rate of return.

Walter Model portrays that an optimal dividend policy will depend on the relationship between

the firms internal rate of return (r) and the cost of capital (k).

Thus, for a growth firm where (r) is greater than (k), it is assumed to have profitable investment

opportunities which makes the (r) to be greater than (k). All things been equal, it is assumed that

all earnings should be reinvested so as to maximize that value per share over and above that rate

expected by shareholders. Consequently, the optimum payout ratio for growth firm is zero. And

since (r) is greater than (k) the market value per share (P) will increase. But for declining firms r

=

< k. These are firms that do not have any profitable investment opportunities. For companies

under this category, their investment rate of return will be less than the minimum rate required

by investor. Consequently, the optimum payout ratio will be 100 per cent. And since r < K, the

value per share (P) will also increase as payout ratio increases.

The third situation is a normal firm where r = k. These are firms with exhaustible investments

opportunities but whose internal rate of return run at par with the rate of capitalization. In this

case, the price of the stock is indifferent to the dividend policy adopted by the firm. This third

category is in conformity with the dividend irrelevance school of thought.

Despite the accreditation of this model, it's application is limited by the assumption that the

investment opportunities of the firm are financed solely by retained earnings without any

external financing which might not be true. Another faulty assumption is that both (r) and (k) are

constant. This is an overgeneralization since (r) decreases and investment increases and (k)

changes also with the risk of the firm.

Gordon (1962:38) is a major proponent of the dividend relevance school of thought contends that

Investors prefer dividends to capital gain which may never materialize due to uncertainty of

imperfections in the capital market. This uncertainty is on the part of investors increases of an

increasing rate with the distance in the future of prospective cash payment. Gordon's argument is

based on the fact that investors are not indifferent between current dividends and retention of

earnings with the prospects of future dividend, capital gain or both. They would prefer early

resolution of uncertainty and are thus willing to pay a premium for stock that offers the greatest

current dividends. The higher the demand, the higher will be the price, since supply is fixed.

He based this capitalization model on the promise that the market value of a share is equal to the

present value of an infinite stream of dividends to be received, where the dividend per share is

expected to grow when earnings are retained.

Thus:

P E1(1-b) ……………................................................................... 2.8 K- br

Where:

E1 = Current earnings

b = dividend policy

K = an equity firms cost of capital

r = internal profitability

The shortcoming of the model is the discounting method to use due to investors' risk averseness.

Some others have picked on Gordon on this issue of certainty.

Higgins (1972:1759) arguing within the context of "homemade dividend" the Theory contends

that investors can sell a portion of their shares to obtain desired cash distribution if current

dividend is inadequate. Since "Homemade dividend" is supposedly perfect substitute for

corporate dividends, there was no need for investors to look on the company for what they can

do for themselves.

Kirshman (1963); and Graham and Dodd (1951) proved using the bird - in - the - land" theory,

that investors are often ready to pay premium on stocks with higher than average rates of

dividends just as they discount the one with the lower rate. This is in line with Gordon's claim.

According to him, uncertainty increases with futurity, that is, the further one looks into the

future, the more uncertain dividend become.

When dividend policy is considered in the context of certainty the appropriate discount rate (K)

cannot be considered to be constant. In fact, it increases with uncertainty, investors prefer to

avoid uncertainty and would be willing to pay higher price for the share that pays the greater

current dividend, all other things held constant.

Kirshman (1963); Graham and Dodd (1951) further demonstrated diagrammatically in their

support for the relevance of dividend payment. According to them, investors think dividends are

less risky than potential future capital gains, hence, like dividends.

=

If so, a high payout would result like this:

Possible stock price effect

Lintner (1962:234 - 269) maintains that considerable evidence exist that the typical corporation

has a pronounced preference for a policy which ensures an orderly continuation of the dividend

rate one's established. For the purpose of analysis on Lintner's model, in the mid 1950's John

Lintner conducted a classic series of interviews with corporate managers about their dividend

policies. His description of how dividends are determined can be summarized in four “stylized

facts":

1) Firms have long-run target dividend payout ratios. Mature companies with stable

earnings generally payout a high proportion of earnings; growth companies have low

payouts.

2) Managers focus more on dividend changes than on absolute levels. Thus, paying a $2.00

dividend is an important financial decision if last year's dividend was $1.00, but no big

deal if last years dividend was $2.00.

3) Dividend changes follow shifts in long-run, sustainable earnings. Managers 'smooth'

dividends, transitory earnings changes are unlikely to affect dividend payouts.

4) Managers are reluctant to make dividend change that might have to be reversed. They are

particularly worried about having to rescind a dividend increase.

Bird – in – the – hand

Indifference

Tax preference

100% Payout Figure 2.6

40

30

20

10

0

Lintner's developed a simple minded which is consistent with these facts and explains dividend

payments well. Here it is: suppose that a firm always stuck to its target payout ratio. Then the

dividend payment in the coming year (Div1) would equal a constant proportion of earnings per

share (EPS1):

Div = target dividend

= target ratio x EPS1

The dividend change would equal:

Div1 – Div0 = target change

= target ratio x EPS1 – Div0

A firm that always stuck to it's payout ratio would have to change it's dividend whenever

earnings change. But the managers in lintners survey were reluctant to do this. Closely linked to

lintner's observation is the 'information value argument'.

Richardson Pettit (1972:996) empirically lent support to the proposition that the market makes

use of announcements of changes in dividend payment in assessing the value of security. In his

own words, "Management's fear of reducing or omitting dividends seems well founded and leads

to a desire to delay increasing dividends until the level of cash flow can be estimated with little

uncertainty". He therefore concludes that substantial information is conveyed by announcement

of dividend changes and these announcements reflect more information than earnings

announcements.

Solomon (1963:142) in his own contribution to this debate argued that a firm with stable

dividends over time which steps up its level of dividends provides a concrete evidence of its

ability to generate cash and profits. Thus, highlighting the informational content of dividend

which may be better accepted by investors than press release of higher profits, greater

expenditure on manpower training etc. In essence, "action speaks louder than voice". So

investors will increase their demand for shares of a firm at any time it increases its rate of

dividend.

Gordon (1959:99 - 105) demonstrated with empirical data that dividend payout rates and changes

thereto had significant effect on price earning ratios. This, according to him was conclusive

evidence that equity stock value derived from dividends. The problem with Gordon's analysis is

that it suffered from misspecification of the set of explanatory variables (sizes, Leverage,

business risk, and retention ratios are not the same for the firms in his sample) as well as from

errors of measurement of the included variables.

The work by Durand (1955:30) on bank share prices seems to indicate that the proportional

effect of dividends on share price is greater than the corresponding proportional effect of retained

earnings. But he observed that bank stock prices are not suitable for regression with certain

specified models using cross-section data. The limitation of his work it was found that

logarithmic model based on book value, dividends, and earnings does not fit at all 117 banks

used in his study satisfactorily owing to heterogeneity of one sort or another.

An empirical study carried out by Osaze (1985:33) on bank stock exchange confirmed that there

is a high positive correlation between dividend payout ratio and stock prices. While a negative

correlation was noticed between earnings per share and prices. This is in consonance with the

dividend relevance school. But Osaze did not take into consideration risk variables whose

mission could have led to an upward bias in the dividend coefficient.

Ezike (1985:59) stresses the uncertainty in the real world situation, and .in his conclusion lent

support to the stand of Osaze as regard the preference of the Nigeria investors. The limitation of

this work is that he never carried out any empirical test to support his conclusion. The dividend

relevance argument as we can see has a good deal of practical appeal. Theoretically, an investor

who plans to hold his share in perpetuity expects nothing other than dividend. Such an investor

would be naive to ignore payout possibilities in his assessment.

2.19 ARGUMENT FOR THE IRRELEVANCE OF DIVIDEND

In contract to the dividend supremacy hypothesis some theorist has argued that given the

investment decision of the firm, the dividend payout ratio does not affect the wealth of

shareholders. Critics point to apparent empirical contradictions, such as stocks with low or zero

payouts enjoying high market prices, or high payout stock with depressed market prices

otherwise known as the "Petersburg paradox", Durand (1957:348-363). Thus, it would be

improper to rely on dividend rather than on earnings, the independent variable in share valuation.

The major proponents of this view are Modigliani and Miller (M&M).

Modigliani arid Miller (1961:411-431) made a thorough mathematical analysis of their argument

and declared dividend policy as irrelevant. According to them, under a perfect market situation,

the dividend policy of a firm is irrelevant, as it does not affect the value of the firm. They argue

that the value of the firm depends on the firms earnings that result from it's investment policy.

Thus, when investment decision of the firm is given dividends decision: the split of earnings

between dividend and retained earnings - is of no significance in determining the value of the

firm.

A firm operating in perfect capital market conditions may face one of the following three

situations regarding the payment of dividends.

� The firm has sufficient cash to pay dividends.

� The firm does not have sufficient cash to pay dividends, therefore, it issues new shares to

finance the payment of dividends.

� The firm does not pay dividend but a shareholder needs cash.

Modigliani and Miller later went on to stress that what determines the value of a firm is it's

investment opportunities and the earning ability of it's assets. Therefore, the wealth of the

shareholder is not affected by the dividend policy. They built their model on the following

assumptions.

(a) That a perfect capital market exists and as such, no buyer or seller of security is large

enough for his transaction to have appreciable impact on the then ruling price.

(b) Rational behaviour on the part of investors: - That is, they seek economic wealth and are

not sentimentally attached to any particular shares, and are indifferent as to whether their

returns are in form of dividend or capital gains.

(c) Perfect certainty by every investor as to future investments of profit of the firm.

(d) A world of no taxes.

(e) Absence of floatation and transaction costs.

The premise on which the Modigliani and Miller analysis rest is that if dividend policies affect

the value of a firm/ then either current dividends, or future dividends will have a functional

relationship with the value of the firm. They calculated the rate of return for a share held during a

particular year as:

R Dt (Pt – P0) ------------------------------------------------------------------------------ 2.9 Po

Where:

R = Rate of returns for all firms.

Dt = Dividends per share at time t

PO = Purchase price per share

Pt = Market price per share at time t

Modigliani and Miller analysis assumes that even if the extremely financing involves the issuing

of debt, the real cost of debt will be the same as the real cost of equity financing. In other words,

the effect of dividend payments on shareholders wealth offset exactly by other means of

financing. They also strengthened their argument from the perspective of investor's consumption.

They demonstrated that a stockholder's consumption preference need not be jeopardized by the

dividend policy adopted by his firm. If a firm paid more cash dividends than an investor needed

for immediate consumption, he could re-invest the surplus by buying extra shares in the firm. If

less cash dividend was declared, he could attain his consumption level by selling a proportionate

fraction of his total shares in the market.

To lend to their dividend neutrality proposition, Modigliani and Miller (1966) through empirical

evidence applied Ordinary Least Square (OLS) to 3 cross - section samples of US electric utility

companies for the years 1954-1957. They found that the coefficient of the dividend variable was

not statistically significant. Concluding, Modigliani and Miller said that "given a firm's

investment policy, the dividend payout policy it chooses to follow will neither affect the current

price of it's shares nor the total return to it's shareholder".

Their dividend test has been criticized by Gordon (1967) who argued that the instrumental

variables for earnings is basically a dividend variable. Therefore, it is not surprising that when an

=

additional dividend regressor is introduced to the model it's coefficient appears as statistically

significant.

Modigliani and Miller (1967:1299) in an attempt to defend their estimate of the coefficient of

earnings openly accepted that "On the matter of leverage and dividend test, we would certainly

agree with our critics that our result do not close the issue".

Friend and Puckett (1964:659) using statistical analysis conclude that the customary views

purporting to show a strong market reference of dividend are in error. They maintained that for

the average firm irrespective of investor's preference between dividend and capital gains,

dividend payout policies are such that at the margin a dollar of retained earnings should be

approximately equal in market value to the dollar of the dividend forgone.

They concluded that in growth industries higher investors' valuation is placed on retained

earnings. But in non-growth industries, somewhat (but only moderately) higher investor's

valuation may be placed on dividends than on retained earnings within the range of payout

experienced. Therefore, management will be able to increase stock price in non-growth increase

industries by raising dividends and in growth industries by greater retention. The problem with

their analysis is that, the variables included were difficult to measure and subject to large error.

This is because of lack of homogeneity in the assumed underlying stock population between

firms in an industry.

Their study has been criticized by Koutsoyiannis (1982:445) as the most confused and confusing

in the field of 'dividend effect'. The confusion she says arises from the fact that the writers do not

understand the implication of their empirical form for investor's behaviour.

Harkavy (1953:283) empirically demonstrated that the assumptions of the two (2) schools of

thought are not inconsistent. He concludes that as of a given time there is a tendency for stock

prices to vary directly with the proportion of earnings distributed. While over a period of years,

the stock of those corporations retaining the greater proportion of earnings tend to exhibit the

greater price appreciation.

Okafor, F.O. (1983:162) supporting the dividend irrelevance school of thought asserts that in

Nigeria for instance, where maximum payout are prescribed for firms as part of the retained

income policy, a firm is compelled to adopt a dividend policy which may be inconsistent with it's

profit performance and cash flow position. Thus, it would be improper to use externally imposed

rates of dividend in share valuation in such circumstance. The problem with Okafor's work is

that there is no empirical test to support his argument.

In the course of the debate between the dividend relevance and the dividend irrelevance groups, a

third group emerged – the "Clientele group". The proponent of this stand argued that the

Clientele of a corporation has dividend preference. Thus, corporation should adjust their

dividend polices to take advantage of their investors preferences.

If the companies Clientele are largely wealthy and seeking a tax shelter, earning announcement

will definitely be the dominant factor influencing stock prices. While on the other hand, if the

clientele is income seeking, dividend will be the predominant factor, Ugoaga and Alozienwa

(1974:464). As earlier discussed some groups (wealthy individuals for example) have an

incentive to pursue high - payout stocks. Companies with high payout will thus attract one group

and low - payout companies will attract another. This is a 'Clientele effect'.

These different groups are actually called Clientele. And the Clientele effect argument states that

different groups of investors desire different levels of dividends. When a firm chooses a

particular dividend policy, the only effect is to attract a particular Clientele. If a firm changes its

dividend policy, then they just attract a different Clientele.

Brennan (1976:316-318) tried to investigate the effect of dividend policy and Clientele on the

value of a firm by comparing across equilibria of firms with varying Clientele of the firm. A

reduction in dividend leads to unambiguously to an increase in price. Thus, the price of the firms

stock depends on its dividend policy and not on it's particular Clientele.

Financial theory indicates that the expected return on a security should be related to it's dividend

yield. Although, this issue has been researched thoroughly, the empirical results are not generally

consistent with-each other. On the one hand, Brennan as well as Litzenberger and Ramaswamy

(LR) find a positive association between expected pretax returns and dividend yields. In

particular, Litzenberger and Ramaswamy finds that a 1 - percent increase in dividend yield

requires an extra 23 percent in expected return. On the other hand, both Black and Scholes; and

Miller and Scholes find no relationship between expected pretax return and dividend yields.

Baye and Jansen (2006:257-259) are of the view that equity instruments (such as common stock)

represent the ownership of a share of a firm. Accordingly, the owner of a share of common stock

owns a share of the future earnings (profits) of the company issuing the stock. In order to know

when a stock is a good buy, they determined the' value of a share of stock. They lent their

support here to the irrelevant School of thought that when a bank or other company has earnings,

it can either (1) return them to shareholders in the form of dividends or (2) retain them within the

firm. Explaining dividend to represent a direct payment to shareholders, and that earnings that

are retained by the firm increase the value of the firm in that they can either be reinvested

elsewhere at the market interest rate and be paid out as dividends in the future. And that the

value of a firm of any point in time is the present value of all of the firm's future earnings:

Demonstrating the statistical analysis as thus:

Value of a firm = EE1 + EE2 ………….EE�………………………….…….. (2.10) (1+i) (1+i)2 (1+i)�

Where:

EE = Firm's expected earnings at the end of year t

i = Interest rate

T = No of years over which the firm will operate.

Baye and Jansen determined the value of the price of a share of stock by simply dividing the

value of the firm by the number of shares of stock issued by the company as thus:

Stock price value of the firm …………………......................(2.11) Number of shares

The valuation of two particular types of stock were examined in detail,

The two types of stocks are:

(I) Income stocks and (II) The growth stocks.

Income stock are the stocks of companies that have a low level or retained earnings and thus pay

most of their earnings to shareholders as dividends. Earnings paid to shareholders are called

=

dividends. An investor who purchases an income stock primarily purchases a future of dividend

payments. As a consequence, income stocks tend to- have relatively high dividend yields.

The dividend yield on a stock is simply the ratio of the annual dividends per share to the stock

price:

Dividend yield Annual dividends per share……………………… (2.12)

Ps

Where:

Ps = Price of a share of the stock.

The second type of stock is the growth stocks. In growth stocks most or all of the firms current

earnings are reinvested in the firm. Consequently, the dividend yield on a growth stock will be

considerably lower than that on an income stock: In fact, the stock may not pay current dividend

at all (a zero dividend yield). Nonetheless, since the value of the firm is the present value of all

future earnings and earnings invested back into the firm increase the firm's value, considerable

growth in earnings will occur over time. They statistically expressed the present value of the

growth firm in this case as thus:

Value of growth firm = EE1 + EE2 = EE3………��t =1 EEt……………….(2.13) (1+i)1 (1+i)2 (1+i)3 (1+i)t

Using the fact EEt = (1+g)t EE, the equation for the valuation of growth stock can be simplified

as thus:

Value of growth = EE x ��t=1 1+ g ………………………….. (2.14) 1+ i

Value of growth firm = EE x 1 + g ……………………………..(2.15) 1+j

If N shares of stock are outstanding, the price of a share of the firm’s stock will be the fraction 1

of the value of the firm. In order words, the price of a growth stock will be:

N

=

PGS = EE X 1 + g N 1+j

Where:

EE = Expected earnings last year

G = Expected annual growth in those earnings

i = Interest rate

N = Number of shares of stock outstanding

2.20 CRITICISM OF THE MODIGLIANI AND MILLER'S ARGUMENT

Under the simplifying assumptions of Modigliani and Miller, their conclusions are logically

inconsistent and intuitively appealing. But in the real world situation most of these assumptions

are unrealistic and therefore lack practical relevance. Conditions of uncertainty and perfect

market are almost impossible. Consequently, dividend policies do not in actual fact affect the

return and wealth of the shareholders. Several writers argues that the observe preference of

shareholders for current dividend can be attributed to market imperfections. Lintner (1962:243)

noted that even with the same amount of information, investors may reach different conclusions

regarding the future streams of the earnings, because they may assign different probabilities to

the prospective outcomes of the firm operations, depending on their subjective assessment of the

same facts. If the amount and quality of information also differ from various investors, we may

well expect that the dividend policy of managers affect the portfolio decisions of investors. Thus,

he argue that when investors expectations are not homogeneous, the Modigliani and Miller

irrelevance hypothesis does not hold because it requires that the view issues of stock be sold at

the same price.

Also the assumption that taxes do not exist is far from reality. Koutsyiannis (1982:424) contends

that if the assumption of no taxes is relaxed, it will have various effects, the most important

being the effect of the difference between the tax and dividends and the tax on capital gains. She

wrote that in the present personal income tax system, dividends are taxed more heavily than

capital gains.

Furthermore, capital gains are differed until the sales of the stocks. Thus, the total tax effect

depends on the type of investor. Despite the diverse nature of investors, the empirical evidence

by Britton (1966) shows that there is a negative correlation between dividend and on increase in

the tax differential between dividend income and capital gains.

Also, evidence by Elton and Gruber (1970:68-78) shows an inverse relationship between

dividend and tax brackets of investors. These results run contrarily both to the Modigliani and

Millers neutrality theorem, and the standard view that there is a positive relationship between

dividend and stock prices. More so, the assumption on absence of transaction cost and floatation

cost is very unrealistic especially in the Nigerian context. Thus, to sell shares so as to obtain

current income, will not yield as much cash as receiving dividends. So investors will tend to

prefer a firm that saves than the cost and trouble of selling their shares so as to obtain current

income.

2.21 DIVIDEND AND STOCK PRICES

Dividend payment is such an important factor in the performance of a firm that its effect on the

price of the firm's shares has generated much controversy. The controversy, in the main, centres

on the relevance or irrelevance of dividend policy as regards share valuation.

From a theoretical viewpoint, the importance of dividend in determining stock price is obvious.

Stock price should equal the present value of all future expected dividends on the stock. We

would in this study measure the effect of dividend payment on share prices of various quoted

firms. Various schools of thought have emerged on the issue of dividend and stock valuation.

One school argues that the current value of a firm is independent of it's dividend decisions, rather

the value of a firm derive from it's investment policy. They believe that whatever gains that

would be derived from dividend payments would be offset exactly by the cost of external

financing Miller et al (1961:414) the underlying assumption for this school are a frictionless

market, rational investors and perfect certainty about future earnings of the firm. This view is

further enhanced by the notion of a preference for capital gains over dividend payments due to

tax considerations. Some people value capital gains higher because they attract less tax relative

to each dividend.

The other school contends that dividend policy should and intact does affect value of firm.

Dividend policy can only be irrelevant when the rate of return of investment equates the cost of

financing the investment (Gordon 1963:267). A stock is what one can get out of it, hence, it

derives it value from dividend and not earnings. Earnings represent only a means to an end and

the means must not be confused with the end (Williams 1964:57).

Other arguments in favour of the relevance of dividend policy in the determination of share

prices include certainty and information content. Given the assumption that investors are risk

averse and differed dividend is uncertain, investors valued certainty of 'one naira' today to the

uncertainty of capital gains. They are therefore willing to pay a higher price to avoid such

uncertainty. A counter argument is the assertion that an investor can generate homemade

dividend by selling a part of his stock to make up for the shortfall in his preferred dividend

receipt [(expected returns) (Higgin 1972).} However, the uncertainty regarding the selling price

of a stock is opposed to his argument. Stock prices under uncertainty fluctuate and the investor

may not realize the return by selling some stock in this situation.

A major attribute of dividend is it's informational content. A number of writers are of the opinion

that considerable amount of information is conveyed, by changes in dividend payout rates.

Corporate insiders, (managers, directors etc) have more insight into the earnings potential of

their firm's assets and as such a dividend announcement by management is usually interpreted by

investors as a reflection of managements expectation regarding their firm's earning potential

(Lintner 1956). An announcement of increase in dividend would imply that management is

confident that anticipated cash flow would be sufficient to meet cash flow obligations. A study

by Aharony and Swany (1980) throws more light on the issue of dividend announcement and

share prices. The study examined quarterly dividend announcement of 149 firms over the 1963 -

1976 period. After controlling for other factors which might affect stock returns around the

dividend announcement date, the sample was divided into two (2) groups, those announcement

associated with dividend decrease and those associated with dividend increase. The result shows

a sharp drop in Cumulative Abnormal Return (CAR) several days before the announcement date

and on the announcement date. This lends credence to the notion that stock prices are affected by

changes in current dividend rate and that current dividend changes cause investors to revise their

expectations concerning the long-run dividend stream. The study fond normal abnormal return

associated with dividend decrease than with dividend increase. This conforms to the notion that

the managers of firm are reluctant to cut dividend and investors view dividend cuts as a much

stronger indicator of the company's future fortunes than dividend increase.

Darling (1955) while studying the changes in dividend payout rates over the 1930-1955 period

observed that variations represent a reflection of management expectations. A surrogate measure

of business confidence is dividend disbursement which reflects the liquidity status of a firm -

when liquidity implies the existence of adequate financial resources which can be employed in

investment options as the need arises. Lintner (1956) observed that dividend payout rates of

firms (especially large firms) are inflexible downwards. Any incensement in dividend payout

rate is usually informed by a high probability that future cash flows would be adequate to sustain

the higher dividend payout rate.

The significance of the information content of dividend announcement is further supported by

the tendency for managers to be conservative about the kind of public statement they make

concerning the earning potentials of their firm. Furthermore, due to the variation of actual

earnings from expected earnings, dividends (or lack of it) is a signal used by management to

convey their expectations about the firms earning power and liquidity to the public Petitt

(1972:994). In a study designed to:

1. Provide further evidence in support of the efficient market hypothesis in respect of

speed and accuracy of market price adjustment to dividend announcement, and

2. Provide evidence for the information content hypothesis of dividends.

Petitt (1972) showed that dividends convey some information to the market. He discovered that

information pertaining to a firm may become available at anytime and the market utilizes this

information in the assessment of market value for securities. The study confirmed that share

prices adjust to dividend announcement and the largest adjustment occurs in the period of the

announcement. A stock split merely serves to multiply the number of shares and is not in itself

expected to change the value of a company's stock. The net worth of the company stays the same

after the stock split (Van Home 1980: 357-358). However, it has been observed that increase

dividends are paid within the next one year following a stock split. In view of this Fama et al

(1969) suggested that the market interprets stock split as an indication of increased earnings vis-

à-vis dividend due to the information content of dividend. Further, any increase or decrease in

excess returns following the split is determined by whether the anticipated dividend is received

or not respectively. Also, the prices of stock that failed to announce the anticipated dividend fell

dramatically about the pre-split period price level. Ramasastry et al (1987:338) gave evidence

that the dividend announcement effect for a firm that pays dividends is positive especially when

investment is fixed. However, an issue of a new stock has negative effect on a company's stock

particularly for firms with private information about the assets in place. Miller and Modigliani in

discussing the model under uncertainty even admitted the information content hypothesis:

"Where a firm has adopted a policy of dividend stabilization with a long established and

generally appreciated "target payout ratio", investors are likely to (and have goad reason to)

interpret a change in the dividend rate as a change in managements view of future profit

prospects for the firm".

To explain the phenomenon, they wrote: -

"The dividend change in order words provides the occasion for the price change though not its

cause, the price still being solely a reflection of future earnings and growth opportunities".

From the preceding review, one can easily conclude that dividend announcements are

accompanied by changes in the prices of shares and this takes place in an efficient market

condition. The usefulness of the Efficient Market Hypothesis is however hindered by the

inconclusive findings from studies conducted on the strong- form Efficient Market Hypothesis.

Granting tine a Dove reviews snowed that dividend announcement Information Invoke some

form of response from the capita) market. While the amount and content of information is

uncertain, share prices adjust: to dividend announcement in line with the magnitude of the

changes in dividend payout rates. There is no hard and fast rule about adjustment of share prices

to dividend announcement but the adjustment is generally In line with what should operate in am

efficient capital market.

2.22 THE STOCK VALUATION MODEL

The model presented here is not essentially new. It is similar to that specified by Gordon and

Malkfiel and Cragg. Let (P) stand for the price of a common share of stock; (D) the dividend per

share; and (r) the appropriate rate of discount. It's hypothesized that the price of a common share

is the sum of the present value of a stream of dividends that is assumed to grow at a constant

rate, g, over time or

P = α� D(1+g)t ……………………………………………………………….. (2.17)

i = (1+r)t Provided that g < r. Equation (2.18) may be dividend over earnings per share, E, and the

geometric progression summed to obtain an expression for the price - earning ratio:

P = D (1+g) …………………………………………………… (2.18) E E (r–g)

The price - earnings ratio is a function of the dividend – payout ratio, the long term growth rate

of the dividend stream and the specified discount rate. The absolute price of a stock may be

obtained by multiplying through by E.

P = D (1+g) E …………………………………………………….. (2.19) E (r–g)

It would also seem intuitively plausible that common stock prices are positively related in (3) to

both the level and growth rate in earnings and the dividend - payout ratio. This highly simplified

model of common stock evaluation omits risk. Risk is usually introduced into the empirical

valuation model as the variance of the future earning stream of each security.

2.23 FACTORS THAT CAN INFLUENCE MOVEMENT OF STOCK- PRICES ON

THE STOCK EXCHANGE

Theoretically, the major factor that influences stock prices in any stock market is the forces of

demand and supply. Thus, when there are more persons willing to buy a particular security than

suppliers, the price will rise and vice versa. Increase in the demand for stocks shows an

anticipation of a buoyant economy. This explains why stock market worldwide are used as

barometers for the economy. But in practice, there are some other endogenous and exogenous

variables that tend to combine to influence the reaction of stock market participants to stock

prices. These factors include:

1. Investors tend to respond to factors that affect the company's future such as merger

proposals, take over bids, quality of management, growth history, competitive position of

the company and potentials for technological breakthroughs. Hence, in a corporate

valuation, a company's analysis is done to select a firm that is not only competitive but

has a reasonable chance of at least maintaining its competitive position in future.

2. Speculation of the performance of a company can aggravate share price movement.

Investors generally react to economic conditions which may lead to a bullish or bearish

market. For instance, fear or hope of budgetary or monetary measures or even

publications of balance of payment figures can influence investors.

3. Level of interest and yield differentials: During the period of rising interest rate, stock

prices tend to drop or level-up. The price of bond will move in the opposite direction

because of its attractiveness. But from a corporate point of view, as interest rate

increases, stock prices might rise depending on the use of internal financing by

companies.

4. Money supply and by extensions inflation: According to kraff and kraff (1977) as supply

of money increases, stock prices tends to increase, normally which suggests that real

stock prices remained constant except if the increase in the supply of money is a lot less

than the increase in the stock price. The opposite is the case with bond.

5. Trading volume: Ying (1966) suggested that it takes volume to move the price of a stock

on the stock exchange because trading volume is indeed a measure of investors'

emotions.

6. Any very important factor that can affect stock price is the financial performance of a

company, i.e., the company's earnings.

7. The world economy and political situation within the country can influence investors'

confidence in the economy and therefore, in their investment behaviour.

Summarily factors that influences share price behaviour are in 5 broad areas namely:

i) Economic policies and Events

ii) Corporate Managerial Decisions

iii) Psycho-social variables

iv) Political events and policies

v) Institutional parameters.

The economic factors which were responsible for the patterns of share price movement are:

1. Corporate earnings performance

2. Investor's evaluation of the selling price of the shares as against the cost price.

3. Magnitude of public sector expenditure.

The following Government economic polices produced either a rising effect or a falling effect

or a neutral impact on the share prices of the companies.

1. The anti-inflationary measures of 1976 - 1977.

2. The dividend payout restriction.

3. The comprehensive Import Supervision Scheme (form 'M')

4. The foreign exchange control measure

5. The import prohibition/restriction of import licenses.

6. The excise duty policies.

7. The variations in company tax rates.

However, some of these policies do not apply to some firms. The psycho-social influences on

share price behaviour are:

1.The public image of the company and product popularity.

2.Unwillingness of shareholders to sell.

3.Investors' awareness of corporate performance.

4.Investor's confidence in old listed companies.

5.Investors anticipation of growth.

6.Investor's ignorance of the opportunities in newly listed companies.

7.Rumours in and out of the stock market.

It was found that the following political events and policies produced either a rising effect or a

falling effect or a neutral effect on the share prices of the companies. The institutional factors

that influenced the share price behaviour are:

1. The rigid regulation of the market price of shares by the Exchange authorities.

2. The inability of the stock market to respond fast enough to information about corporate

performance,

3. Manipulation of prices by Brokers.

Institutional Constraints: The constraints that stifle the free price mechanism in the capital

market are:

1. Limited number of registrars

2. Limited number of Brokers

3. Interference with market price mechanism

4. Call-Over System

5. Staffing position of the Nigerian Stock Exchange

6. Dearth of technical knowledge

7. Security transaction costs

8. Limited availability of investment information

(See Anyafo, A.M.O. (1982:546-549).

2.24 THE NIGERIAN STOCK EXCHANGE (NSE)

The Nigerian stock Exchange was established in 1960 as the Lagos Stock Exchange. In

December 1977 it became known as the Nigerian Stock Exchange, with branches established in

some of the major commercial cities of the country. There are now eight branches of the

Nigerian stock Exchange. Each branch has a trading floor, some of them electronic. The head

office in Lagos was opened in 1961; Kaduna branch in 1978; Port Harcourt, 1980; Kano, 1989;

Onitsha, February 1990; Ibadan, August 1990; Abuja area office, 1999; Yola, 2002; and Benin

2005.

The Exchange started operations in Lagos in 1961 with 19 securities listed for trading. Currently,

there are 288 securities listed on the Exchange, made up of 33 Government Stocks, 47 industrial

loans (Debenture)/preference) stocks and 204 equity/ordinary share of companies, with a total

market capitalization of N3.7 trillion. Many of the listed companies have foreign/multinational

affiliations and represent a cross-section of the economy, ranging from agriculture through

manufacturing to services.

2.24.1 Operations on the NSE

The market has in place a tested network of stockbrokerage firms, issuing-houses, practical

corporate law firms, and over 50 quality firms of auditors and reporting accountants (most with

international affiliation).

The stock Exchange and most of the stock broking firms and issuing houses are staffed with

creative financial engineers that can compete anywhere in the world. Therefore, the market has

in place a network of intermediating organizations that can effectively and creditably meet the

growing needs of investors in Nigeria.

Integrity is the watchword of the stock exchange. Market operators subscribe to the code "our

word is our bond". Thus public trust in the Nigerian stock market has grown tremendously, with

over three million individual investors and hundreds of institutional investors (including

foreigners who own about 47% of the quoted companies) using the facilities of the Exchange.

2.24.2 Trading System on the NSE

The Nigerian Stock Exchange has been operating an Automated Trading System (ATS) since

April, 27, 1999, with dealers trading through a network of computers connected to a server. The

ATS has facilities for remote trading and surveillance. Consequently, many of their dealing

members trade online from their office in Lagos and from their Abuja area office, Kano, Port

Harcourt, Yola, Ibadan, and Benin branches of the Exchange. The Exchange is in the process of

connecting more branches for online real time trading. Trading on the Exchange starts at

10.00am every business day and closes at 12.00noon.

2.24.3 Pricing on the NSE

The Nigerian' capital market was deregulated in 1993. Consequently, prices of new issues are

determined by issuing houses and stockbrokers. While on the secondary market prices are made

by stockbrokers only. The market/quote prices, along with the All-share index, are published

daily in the stock Exchange daily official list, the Nigerian Stock Exchange CAPNET (an

internet facility), their website (nigerianstockexchange.com), newspapers, and on the stock

market page of the Reuters Electronic Contributor System. Their online code in the Reuter

Network is NSX-B.

2.24.4 NSE: All Share Index

The Exchange maintains an All-share Index formulated in January 1984 (January 3, 1984=100).

Only common stocks (ordinary shares) are included in the computation of the index. The index is

value-weighted and is computed daily.

2.24.5 Clearing, Delivery and Settlement on the NSE

Clearing, settlement and delivery transactions on the Exchange are done electronically by the

Central Securities Clearing System LTD (CSCS), a subsidiary of The Stock Exchange. The

CSCS Limited ("the clearing house") was incorporated in 1992 as part of the effort to make

Nigerian Stock Market more efficient and investor-friendly. Apart from clearing, settlement and

delivery, the CSCS Limited offers custodian services. Transaction cycle is T +3.

2.24.6 Stock Market Legislations: An NSE Guide

Transactions in the stock market are guided by the following legislations, among others:

� Companies and Allied Matters Act of 1990.

� Investment and Securities Act of 1999.

� Nigerian Investment Promotion Commission Act of 1995.

� Trustees Investment Act of 1990.

� Foreign Exchange.

� The Pension Act of 2004.

Money laundering and (miscellaneous provisions) Act of 1995.

2.24.7 Regulation on the NSE

Transactions of the Exchange are regulated by the Nigerian Stock Exchange, as a Self-

Regulatory Organization (SRO), and the Securities and Exchange Commission (SEC), which

administers the Investments and Securities Act of 1999. The Nigerian stock Exchange is an

Affiliate member of the World Federation of Exchanges (WFE).

2.24.8 Foreign Investment on Corporate Firms on the NSE

In 1995, the Federal Government abrogated the Exchange Control Act of 1962 and the Nigerian

Enterprise Promotion Decree of 1989. Consequently, foreigners now participate in (the Nigerian

Capital Market both as operators and investors. There are no limits to the percentage of foreign

holding in any company registered in the

2.25 QUOTED Vs. UNQUOTED COMPANIES

A public company may be quoted which case it has sought and received listings for its shares to

be traded on one or more Securities Exchanges. By being publicly listed, a ready market and

easy transferability of the securities of the company are created on a Stock Exchange or on an

Over-the-Counter (OTC) Market. The securities of a public company not listed on a Stock

Exchange or traded on a recognized OTC market are by contrast not easily resold.

As a matter of fact, the absence of an established trading avenue for unquoted securities is

principally responsible for the observed illiquidity of unquoted securities and sometimes poor

public response to their issues. Indeed, most often public unquoted companies opt to raise capital

by way of private placement and rights issues as against public offers of securities.

A private placement is the sale of securities to a group of investors previously identified by the

issuer or its advisers and not a sale to the general public. The placement is usually with

institutional investors and high net-worth individuals who can carry out independent assessment

of the issuer and its privately placed securities. Right issues are also restricted offers, opened

only to existing shareholders of a company on pro rata basis. The existing shareholders may

decide to sell their 'rights' or 'position' to buy shares in a rights offer. This is usually affected

through the secondary market, and this is known as trading in Rights. The fact that they are

offered to existing shareholders who are familiar with the company, the disclosure requirements

for rights are not as extensive as they are for public offerings. For instance, while a prospectus is

mandatory for public offerings of securities they need not be issued in the case of right offerings.

A rights circular is accepted by law as adequate for issues to shareholders.

A rights circular contains brief information about the securities, and the issuer. As an offer

document, the rights circular must be vetted and cleared by the SEC and the securities must also

be registered by the Commission. As a result of the less stringent disclosure requirements, right

issues are cheaper means of raising funds than public offerings of securities.

2.26 FROM PRIVATE TO PUBLIC COMPANY

As the initial source of funds becomes inadequate or inappropriate to finance expansion projects,

an entrepreneur may have to open up the business to outside membership by changing its

corporate status from a private to public company. Private companies are required by the

Companies and Allied Matters Act 1990 (CAMA) to restrict the transferability of their shares,

which must be so disclosed in the articles of association while membership must not exceed 50

excluding persons who are "bona fide in the employment of the company, or where while in that

employment and have continued after the determination of the employment to be members of the

company". A private company except where permitted by law is prohibited from making a public

invitation for its securities.

The law also expects the memorandum of the company to be amended to reflect the new status of

the company (i.e. public status) while restriction on the number of members must be removed.

The law regards any company, which is not a private company as a public company. Also, a

public company, it is free under section 44 of the Investment and Securities Act (ISA) 1999 to

make an invitation to the public to purchase its shares or debentures but only it had complied

with section 50 to 63 of the ISA and the securities have been dully registered by the Securities

and Exchange Commission (SEC) as required by section 32 of the same Act. It should be

stressed that membership of a public company opened to the public and cannot be controlled or

determined by its board of directors or management. Indeed, the company cannot determine,

choose or reject any person from becoming its shareholder. The Memorandum and Articles of

Association must therefore remove all restrictive clauses in this regard. This is different from a

private company where membership may be determined by the promoters (founders) or

directors.

It is obvious that public companies have much wider sources of funds and by implication, could

move easily undertake expansion projects than private companies. Section 50 of the CAMA

specifies the requirements and procedures for conversion from private to public company.

2.27 THE EFFICIENT MARKET HYPOTHESIS: INTRODUCTION

The movements of prices in the stock market are among a few phenomena that have cut across

the boundaries of academic disciplines and have cumulative research evidence spanning almost a

century. Today the field of financial market research seems to be at the exciting stage of "crisis"

(to use Kuhn's analogy) - past results are being questioned, and new solutions are being

proposed. There seems to be growing dissatisfaction among academic researchers with the body

of literature developed on the assumption of market efficiency Keynesian ideologies on

speculative market phenomena (hitherto ignored) are being resurrected to explain the volatile

nature of the stock market. While only time will tell whether or not the present crisis will lead to

a revolution in thought and development of a coherent theory of stock market behaviour, it seems

appropriate at this point to take stock of the current literature in the area of market efficiency and

to identify the emerging lines of thought.

This essay is organized as follows: The first section provides a brief historical “perspective on

EMH. In this section it is observed that the initial euphoria about the EMH has warned and that

conflicting opinions on market behaviour have provided the impetus for the current debate. The

next section identifies some market anomalies and the resultant alternate theories or explaining

market behaviour. The third section provides Keynes' perspective on stock market behaviour.

And a short summary followed by the conclusion.

2.27.1 Efficient Market Hypothesis

a. The specifics

First, what do we mean by an Efficient Market Hypothesis? The simplest explanation would be

that securities prices reflect information. Fama (1970) made a distinction between three forms of

EMH: (a) the weak form, (b) the semi-strong form, and (c) the strong form. However, it is the

semi-strong form of EMH that has formed the basis for most empirical research. The strong form

suggests that securities prices reflect all available information, even private information. Seyhun

(1986, 1998) provides sufficient evidence that insiders profit from trading on information not

already incorporated into prices. Hence the strong form does not hold in a world with an uneven

playing field. The semi-strong form of EMH asserts that security prices reflect all publicly

available information. There are no undervalued or overvalued securities and thus, trading rules

are incapable of producing superior returns, when new information is released, it is fully

incorporated into the price rather speedily. The availability of infraday data enabled tests which

offer evidence of public information impacting stock prices within minutes (Patell and Wolfson,

1984, Gosnell, Keown and Pinkerton, 1996). The weak form of the hypothesis suggests that past

prices or returns reflect future processor returns. The inconsistent performance of technical

analysts suggests that this form holds. However, Fama (1991) expanded the concept of the weak

form to include predicting future returns with the use of accounting or macroeconomic variables.

The evidence of predictability of returns provides an argument against the weak form. While the

semi-strong form of EMH has formed the basis for most empirical research, recent research has

expanded the tests of market efficiency to include the weak form of EMH. There continues to be

disagreement on the degree of market efficiency. This is exacerbated by the joint hypothesis

problem. Tests of market efficiency must be based on an asset-pricing model. If the evidence is

against market efficiency, it may be because the market is inefficient, or it may be that the model

is incorrect. The literature documented below present's evidence of inefficiencies based on

existing models and more recent research findings that cast doubt on these models.

b. The Initial Euphoria and Subsequent Discontentment

The EMH has provided the theoretical basis for much of the financial market research during the

seventies and the eighties. In the past, most of the evidence seems to have been consistent with

the EMH. (1) Prices were seen to follow a random walk model and the predictable variations in

equity returns, if any, were found to be statistically insignificant. While most of the studies in

the. seventies focused on predicting prices from past prices, studies in the eighties also looked at

the possibility of forecasting based on variables such as dividend yield (e.g. Fama & French

[1988]), P/E ratios (e.g. Campbell and Shiller [1988]), and term structure variables (e.g. Harvey

[1991]). Studies in the nineties looked at inadequacies of current asset pricing models.

The maintained hypothesis of EMH also stimulated a plethora of studies that looked, among

other things, at the reaction of the stock market to the announcement of various events such as

earnings (e.g. Ball & Brown [1968]), stock splits (e.g. Fama, Fisher, Jensen and Roll [1969]),

capital expenditure (e.g. McConnell and Muscarella [1985]) divestitures (e.g. Klein [1986]), and'

takeovers (e.g. Jensen and Ruback [1983]). The usefulness or relevance of the information was

judged based on the market activity associated with a particular event in general, the typical

results from event studies showed that security prices seemed to adjust to new information within

a day of the event announcement, an inference that is consistent with the EMH. [2] Even though

there is considerable evidence regarding the existence of efficient markets, one has to bear in

mind that there are no universally accepted definitions of crucial terms such as abnormal returns,

economic value, and even the null hypothesis of-market efficiency. To this list of caveats, one

could add the limitations of econometrics procedures on which the empirical tests are based.

The early euphoric research of the seventies was followed by a more cautioned and critical

approach to the EMH in the eighties and nineties. Researchers repeatedly challenged the studies

based on EMH by raising critical questions such as: can the movement in prices be fully

attributed to the announcement of events? Do public announcement affect prices at all? And

what could be some of the other factors affecting price movements? For example Roll (1988)

argues that most price movements for individual stock cannot be traced to public

announcements. In their analysis of the aggregate stock market, Cutter, Poterba and Summers

(1989) reach similar conclusions. They report that there is little, if any, correlation between the

greatest aggregate market movement and public release of important information. More recently,

Haugen and Baker (1996) in their analysis of determinants of returns in five countries conclude

that "none of the factors related to sensitive to macroeconomic variables seem to be important

determinants of expected stock returns".

c. The Current Debate

The accumulating evidence suggests that stock prices can be predicted with a fair degree of

reliability. Two competing explanations have been offered for such behaviour. Proponents of

EMH (E.g. Fama and French [1995]) maintain that such predictability results from time-varying

equilibrium expected returns generated by rational pricing in an efficient market that

compensates for the level of risk undertaken. Critics of EMH (e.g. La Porta, Lakonishok,

Shliefer, and Vishny [1997]) argue that the predictability of stock returns reflects the

psychological factors, social movements, noise trading, and fashions or "fads" of irrational

investors in a speculative market. The question about whether predictability of returns represents

rational variations in expected returns or arise due to irrational speculative deviations from

theoretical values has provided the impetus for fervent intellectual inquiries in the recent years.

2.27.2 Evidence against EMH and Alternate Theories of Market Behaviour

1. Market Anomalies

The EMH became controversial especially after the detection of certain anomalies in the capital

markets. Some of the main anomalies that have been identified are as follows.

A. The January Effect: Rozeff and Kinney (1976) were the first to document evidence of

higher mean returns in January as compared to other months. Using NYSE stock for the

period 1904-1974, they find that the average return for the month of January was 3.48

percent as compared to only 42 percent for the other months. Later studies document the

effect persists in more recent years: Bhardwaj and Brooks (1992) for 1977-1986 and

Eleswarapu and Reinganum (1993) for 1962 for 1961-1990. The effect has been found to

be present in other countries as well (Gultekin and Gultekin, 1983). The January effect has

been documented for bonds by Chang and Pinegar (1986). Maxwell (1998) shows that the

market effect is strong for non-investment grade bonds, but not for investment grade bonds.

More recently, Bhabra, Dhillon and Ramirez (1999) document a November effect, which is

observed only after the Tax Reform Act of 1986. They also find that the January effect is

stronger since 1986. Taken together, their results support a tax- loss selling explanation of

the effect.

B. The Weekend Effect (or Monday Effect): French (1980) analyses daily return of stocks for

the period 1953-1977 and finds that there is a tendency for returns to be negative on

Mondays whereas they are positive on the other days of the week. He notes that these

negative returns are "caused only by the weekend effect and not by a general closed -

market effect". A trading strategy, which would be profitable in this case, would be to buy

stocks on Monday and sell them on Friday. Kamara (1997) shows that the S & P 500 has

no significant Monday effect after April 1982, yet he finds the Monday effect

unaccomplished from 1962-1993 for a portfolio of smaller U. S. Stocks. Internationally,

Agrawal and Tandon (1994) find significantly negative returns on Monday in nine

countries and on Tuesday in eight countries, yet large and positive returns on Friday in 17

of the 18 countries studied. However, their data do not extend beyond 1987. Steeley (2001)

finds that the weekend effect in the U. K has disappeared in the 1990s.

C. Other Seasonal Effects: Holiday and turn of the month effect have been well documented

over time and across countries. Lakonishok and Smith (1988) said that US stock returns are

significantly higher at the turn of the month, defined as the last and first three trading days

of the month. Ariel (1987) shows that returns tend to be higher on the last day of the

month, Cadsby and Ratner (1992) finds similar turn of month effect in some countries and

not in others. Ziemba (1991) finds evidence of a turn of month effect for Japan when turn

of month is defined as the last five and first two trading days of the month. Hensel and

Ziemba (1996) and Kunkel and Compton (1998) show how abnormal returns can be earned

by exploiting this anomaly. Lakonishok and Smith (1988), Ariel (1990), and Cadsby and

Ratner (1992) all provide evidence to show that returns are, on average, higher the day

before a holiday, than on other trading days. The latter review shows this for countries

other than the U.S Brockman and Michayluk (1998) describe the pre-holiday effect as one

of the oldest and most consistent of all seasonal regularities.

D. Small Firm Effect: Banz (1981) published one of the earliest articles on the 'small-firm

effect' which is also known as the 'size effect'. His analysis of the 1936-1975 periods

reveals that excess returns would have been earned by holding stocks of low capitalization

companies. Supporting evidence is provided by Reinganum (1981) who reports that the risk

adjusted annual return of small firms were greater than 20 percent. If the market were

efficient, one would expect the prices of stocks of these companies to go up to a level were

the risk adjusted returns to future investors would be normal. But this did not happen. E.

P/E

E. Ratio Effect: Sanjoy Basu (1977) shows that stocks of companies with low P/E ratios

earned a premium for investors during the period 1957-1971. An investor who held the low

P/E ratio portfolio earned higher returns than an investor who held the entire sample of

stocks. These results also contradict the EMH. Campbell and Shiller (1982) show P/E ratios

have reliable forecast power. Fama and French (1995) find that market & size factors in

earnings help explain market and size factors in returns. Dechow, Hutton and Sloan (2001)

document that short-sellers position themselves in stocks of firms with low earnings to

price ratios since they are known to have lower future returns.

F. Value-Line Enigma: The Value line organization divides them into five groups and ranks

them according to their estimated performance based on publicly available information.

Over-a five year period starting from 1965, returns-to investors correspond to the ranking

given to firms. That is, higher ranking firms earned higher returns. Several researchers (e.g.

Stickel 1985) find positive risk- adjusted abnormal (above average) return using value line

rankings to form trading strategies, thus challenging the EMH.

G. Over/Under Reaction of Stock Prices to Earnings Announcement: There is substantial

documented evidence on both over and .under-reaction to earnings announcements.

DeBondt and Thaler (1985, 1987) present evidence that is consistent with stock prices

overreacting to current changes in earnings. They report positive (negative) estimated

abnormal stock returns for portfolios that previously generated inferior (superior) stock

prices and earning performance. This could be construed as the prior period stock price

behavior even reacting to earnings developments (Bernard, 1993). Such interpretation has

been challenged by Zarowin (1989) but is supported by Debondt and Thaler (1990).

Bernard (1993) provides evidence that is consistent with the initial reaction being too small

and being prolonged over a period of at least six months. Ou and 'Penman (1989) also

argues that the market under utilizes financial statement information. Bernard (1993)

further notes that such anomalies are not due to research design flaws, inappropriate

adjustment for risk, or transaction costs. Thus, the evidence suggests that information is not

impounded in prices instantaneously as the EMH would predict.

H. Standard & Poor's (S&P) index effect: Harris and Gurel (1986) and shielfer (1986) find a

surprising increase in share prices (up to 3 percent) on the announcement of a stock's

'inclusion into the S&P 500 index. Since in an efficient market only information should

change prices, the positive stock price reaction appears to be contrary to the EMH because

there is no new information about the firm other than its inclusion in the index. [3].

I. Pricing of Closed-end Funds: Unlike open-end funds, closed-end funds do not stand ready

to sell or repurchase their securities at the net asset value per share. [4] They float a fixed

number of shares in an initial public offering and after that, investors wishing to buy or sell

shares of a closed-end funds must do so in the secondary market. [5] The prices in the

secondary market are dictated by the market forces of demand and supply which may not

be directly linked to the fund's fundamental or net asset value. Malkiel (1977) argues that

the market valuation of closed-end investment company shares reflects mispricing. As he

notes, "The pricing of closed - end funds does then seem to provide an illustration of

market imperfection in capital asset pricing". In general, the funds have been shown to

trade at a discount relative to their net asset values (see Malkiel 1977; Brickley and

Schallheim, 1985; Lee shielfer and Thaler, 1991). Between 1970 and 1990, the average

discount on closed-end funds ranges between 5 to 20 percent. The existence of discounts

clearly contradicts the value additively principle of efficient and frictionless capital market.

(6) Reports from the popular press have also commented on mispricing in the closed-end

fund market. As Laderman notes in Business Week (March 1, 1993), "America's financial

markets are the most efficient in the world. But there's one corner where pockets of

inefficiency still exist: closed-end funds".

J. The Distressed Securities Market: While the academic literature largely suggests that

stocks in the distressed securities market are efficiently priced (e.g. Ma and Weed [1986])

Weinstein [1987], Fridson and Cherry [1990], Blume, Keim and Pael (1991), Cornell and

Green [1991], Eberhart and Sweeney [1992], Altman and Eberbzu (1994), Buell [1992] the

popular press has frequently conjectured that the stock pricing may be inefficient during

the bankruptcy period, [7] For Example, the shares of Continental Airlines continued to

trade on the AMEX at or about $1.50 per share even after the company had negotiated a

plan with its creditors that would provide no distribution to the pre-petition equity holders

(WSJ 1992). [8] Investors have always sough superior returns in the securities markets and

vulture investors have attracted a substantial amount of risk oriented money by offering the

possibility of high returns by exploiting the apparent pricing inefficient or anomalies the

market for distressed securities. As Philip Schaeffer of Robert Fleming Inc.

"Returns are attractive because of market's abundant efficiencies. Investors who find

themselves owners of distressed securities do not understand and want to participate in the

market and frequently sell at prices essentially below the investments' cost. Distressed

investing requires skills involving bankruptcy law, experience and knowledge of the

bankruptcy process, and personal contacts. Consequently, the relatively small numbers of

experienced distressed security investors have a significant advantage over other investors

who do not have such expertise, knowledge and experience" (wall streets Journals, 1991).

K. The Weather: Few would argue that sunshine puts people in a good mood. People in good

moods make more optimistic choices and judgments. Sounders (1993) shows that the New

York Stock Exchange index tends to be negative when it is cloudy. More recently,

Hirshleifer and Shumay (2001) analyze data for 26 countries from 1982- 1997 and find that

stock market returns are positively correlated with sunshine in almost all of the countries

studied. Interestingly, they find that snow and rain have no predictive power!

These phenomena have been rightly referred to as anomalies because they cannot be explained

within the existing paradigm of "EMH”. It clearly suggests that information alone is not moving

the prices. (Roll, 1984) (9). These anomalies have led researchers to question the EMH and to

investigate alternate modes of theorizing market behaviour. Such a development is consistent

with Kuhn's (1970) route for progress in knowledge. As he states, "Discovery commences with

the awareness of anomaly, i.e., with the recognition that nature has somehow violated the

paradigm induced expectations..."(Kuhn, 52).

2.27.3 Volatility Tests, Fads, Noise Trading

The greatest stir in academic circles has been created by the result of volatility tests. These tests

are designed to test for rationality of market behaviour by examining the volatility of share prices

relative to the volatility of the fundamental variables that affect share prices. The first two studies

applying these tests were by Shiller (1981) and LeRoy and Porter (1981). Shiller tests a model in

which stock prices are the present discounted value of future dividends. LeRoy and Porter use a

similar analysis for the bond market. These studies reveal significant volatility in both the stock

and bond markets. Fluctuations in actual prices greater than those implied by changes in the

fundamental variables affecting the prices are inferred by shiller as being the result of fads or

waves of optimistic or pessimistic market psychology. Schwert (1989) tests for a relation

between stocks return volatility and economic activity. He finds increased volatility in financial

asset returns during recessions which might suggest that operating leverage increase during

recessions. He also finds increased volatility in periods where the proportion of new debt issues

to new equity issues is more than a firm's existing capital structure. This may be interpreted as

evidence of financial average affecting volatility. However, neither of these factors plays a

dominant role in explaining the time varying volatility of the stock market. The volatility tests of

Shiller spawned a series of an articles. The results of excess volatility in the stock market have

been confirmed by Cochrane (1991), West (1988), Campbell and Shiller (1987), Mankiw,

Romer, and Shapiro (1985). The tests have been criticized, largely on methodological grounds,

by Ackert and Smith (1993), Marsh and Merton (1986), Kleidon (1986) and Flavin (1983).

The empirical evidence provided by volatility tests suggest that movements in stock prices

cannot be attributed merely to the rational expectations of investors, but also involves an

irrational component. The irrational behaviour has been emphasized by Shielfer and Summers

(1990) in their exposition of noise trading.

Shielfer and Summers (1990) posit that there are two types of investors in the market: (a) rational

speculators or arbitrageurs who trade on the basis of information and (b) noise traders who trade

on the basis of imperfect information. Since noise effect market on imperfect information, they

will cause prices to deviate from their equilibrium valves. It is generally understood that

arbitrageurs play the crucial role of stabilizing prices. While arbitrageurs dilute such shifts in

prices, they do not eliminate them completely. Shiiefer and Surmmers assert that the assumption

of perfect arbitrage made under EMH is not realistic. They observe .that arbitrage is limited by

two types of risk (a) fundamental risk and (b) unpredictability of future resale price. Given

limited arbitrage, they argue that security prices to not merely respond to information but also to

"changes in expectations or sentiments which are not fully justified Information.”(Shielfer and

Summers, 23)

An observation of investors' trading strategies (such as trend chasing) in the market provides

evidence for decision making being guided by "noise" rather than by the rational evaluation of

information. Further support is provided by professional financial analysts spending considerable

resources in trying to predict both the changes in fundamentals and also possible changes in

sentiment of other investors. "Tracking these possible indicators of demand makes no sense if

prices responded only to fundamental news and not to investor demand. They make perfect

sense, in contrast, in a world where investor sentiments moves prices and so predicting changes

in this sentiment pays". (Shielfer and Summers 26).

Black (1986) also argues that noise traders play a useful role in promoting transactions (and thus,

influencing prices) as informed traders like to trade with noise traders who provide liquidity. So

long as risk is rewarded and there is limited arbitrage, it is unlikely that market forces would

eliminate noise traders and maintain efficient prices.

2.27.4 Models of Human Behaviour

In a market consisting of human beings, it seems logical that explanations rooted in human and

social psychology would hold great promise in advancing our understanding of stock market

behaviour. More recent research has attempted to explain the persistence of anomalies by

adopting a psychological perspective. Evidence in the psychology literature reveals that

individuals have limited information processing capabilities exhibits systematic bias in

processing information, are prone to making mistakes, and offsetting them to rely on the opinion

of others.

The damaging attacks on the assumption of human rationality have been spearheaded by

kahneman and Tversky (1986) in their path breaking article on prospect theory. The findings of

kahneman and Tversky have brought into question expected utility theory which has been used

descriptively and predictively in the finance and economics literature. They argue that when

faced with the complex task of assigning probabilities to uncertain outcomes, individual often

tend to use cognitive heuristics. While useful in reducing the ask to a manageable proportion,

these heuristics often lead to systematic biases.

Using simple decision tasks, Kahneman and Tversky are able to demonstrate consistent decision

inconsistencies by manipulating the decision frame while expected utility theory would predict

that individuals would evaluate alternatives in terms of the impact on these alternatives on their

final wealth position, it is often found that individuals trend to violate expected utility theory

predictions by evaluating the situation in terms of gains and losses relative to some reference

point. The usefulness and validity of kahneman and Tversky's propositions have been established

by several replications and decisions for situations involving uncertainty by researchers in the

fields of accounting, economics, finance, and psychology. Rabin and Thaler (2001) show that

expected utility theory's explanation of risks aversion is not plausible by providing examples of

how the theory can be wrong and misleading. They call for a better model of describing choice

under uncertainty. It is now widely agreed that the failure of expected utility theory is due to the

failure to recognize the psychological principles governing decision tasks.

The literature on cognitive psychology provides a promising framework for analyzing investors'

behaviour in the stock market. By dropping the stringent assumption of rationality conventional

models, it might be possible to explain some of the persistent anomalous findings. For example,

the observation of overreaction is consistent with the finding that subjects, in general, tend to

overreact to new information (and ignore base rates). Also, agents often allow their decision to

be guided by irrelevant points of reference, a phenomenon discussed under "anchoring and

adjustment". Shiller (1984) proposes an alternate model of stock prices that recognizes the

influence of social psychology. He attributes the movements in stock prices to social movements.

Since there is no objective evidence on which to base their predictions of stock prices, it is

suggested that the final opinion of individual investors may largely reflect the opinion of a larger

group. Thus, excessive volatility in the stock market is often caused by social "fads" which may

have very little rational or logical explanation.

Shiller (1991, ch.23) also investigates investor behaviour during the October 1987 crash by

surveying individual investors, institutional investors and stockbrokers. The survey results

indicate that most investors traded because of price changes rather than due to news about

fundamentals. There appear to have been no major economic developments at that time that

triggered the crash. He concludes that it would be wrong to interpret the crash as being due to a

change in public opinion about some fundamental economic factor Seyhun (1990) shows that the

1987 crash was a surprise to corporate insiders. Betes (1991) tests for market expectations prior

to the crash by looking at S &P 500 futures options prices, standard pricing models imply that

out of the money (OTM) puts trade at a slight discount to OTM calls. However, OTM puts were,

at various times in 1987, priced higher than OTM calls. This overpricing of OTM puts could

only imply an expectation of a market crash or increased market volatility if the market fell. The

prices reveal that the market expected a crash at the beginning of 1987 or in mid-August, when

in fact the market actually peaked and that there was no expectation of a crash in the two months

before October 19. Research into investor behaviour in the securities markets is rapidly

expanding with very surprising results, again, results that are often counter to the notion of

rational behaviour Hirshleifer and Shumway (2001) find that sunshine is strongly correlated with

the daily stock returns. Using a unique data set of two years of investor behaviour for almost the

entire set of investors from Finland, Grinblatt and Keloharju (2001) find that: custom, language,

and culture influence stock trades. [10] Huberman and Regev (2001) provide an example of now

and not when information is released can cause stock price reactions they study the stock price

effect of news about a firm developing a cure for cancer. Although the information had been

published a few months earlier in multiple media outlets, the stock price more than quadrupled

the day after receiving public attention in the New York Times. Although there was no new

information presented, the form in which it was presented causes a permanent price rise.

The efficient market view of prices representing rational valuation of fundamental factors has

also been challenged by Summers (1986), who views the market to be highly inefficient. He

proposes that pricing should comprise a random walk plus a fad variable. The fad variable is

modeled as a slowly mean-reverting stationary process. That is, stock prices will exercise some

temporary aberrations, but will eventually return to their equilibrium price levels.

One may argue that market mechanisms may be able to correct the individual decision biases and

thus individual differences may not matter in the aggregate whatever, the transition from micro

behaviour to macro behaviour is still not well established for example, the study of price

differences among similar consumer products, Pratt, Wise and Zeckhauser (1979) demonstrate

the failure of the market to correct individual biases.

All arguments aside the stock market crash of 1987 continues to be problematic for the

supporters of EMH. Any attempt to accommodate a 22.7 percent devaluation of the stocks within

the theoretical framework of EMH would be a formidable challenge. It seems reasonable to

assume that the decline did not occur due to a major shift in the perceived risk or expected future

dividend. The crash of 1987 provides further credence to the argument that the market includes a

significant number of speculative investors who are guided by "non-fundamental" factors. Thus,

the assumption of rationality in conventional models need to rethought and reformulated (to

conform to reality).

2.27.5 Keynes and EMH

The EMH and John Maynaro Keynes' (1936) philosophy represent two extreme views of the

stock market. EMH is built on the assumptions of investor rationality. This image is in stark

contrast .to keynes' philosophy in which he pictures the stock market as a "casino" guided by

"animal spirit". He argues that investors are guided by short-run speculative motives. They are

not interested in assessing the present valve of future dividends and holding on investment for a

significant period, but rather in estimating the short-run price movements.

In the EMH, investors have a long-term perspective and Return- on-Investments is determined

by a rational calculation based on changes in the long run income values. However, in the

Keynesian analysis, investors have shorter horizons and return the present changes in short-run

price fluctuations. As Crotty (1990) notes in his comparison of Keynes, Tobin and Minsky,

shareholders are increasingly concerned with short-term gains and thus have very short-term

planning horizons. If we regard the rational decision making process of the EMH as that is

guided by a complete knowledge of factors governing the decision, it is immediately seen that

the EMH is flawed. It fails to provide a realistic framework for the formation of expectations. It

is difficult to argue for investor decision making being rational under EMH, given the

uncertainty factor. To make a rational decision would involve knowledge of future income flows

and also the appropriate discount factor, both of which are unknowable. Like Keynes, many

people would agree that few, if any, have sufficient knowledge to make it position forecast

investment yields.

Thus, in the real world, the investor is not faced with risk (as in EMH analysis), but rather

uncertainty, a factor that is given a central role by Keynes. He argues that the future is uncertain

and can never be determined. He is also clear in emphasizing that uncertainly is different from

probability. The difference can be illustrated with Keynes own example. There is risk in the

game of roulette where there is a known set of possible outcomes. The risks that the player does

not know which will eventuate, but it is possible to evaluate the probability of each outcome

occurring. There is, however, uncertainly in knowing the prospect of a future European war.

While possible, there is no basis on which to form any calculable probability. Without objective

evidence on which to base their expectation of prices, it becomes intuitively appealing that

individuals would base their opinions on other memoers of their group an idea emphasized by

Keynes. In his analogy of the stock market as a beauty contest", Keynes notes that the goal of the

investor is often to pick the girl that others would consider prettiest rather than choosing the one

he/she thinks is prettiest. Keynes proposes that individuals tend to conform to the behaviour of

the majority or the average. What is irrational at the individual level becomes conventional and

realistic in Keynesian analysis. Thus, the stock market can be subject to waves of optimistic or

pessimistic sentiment when no solid basis exists for such sentiment, and movements in stock

prices are caused largely by changes in the perception of ignorant speculators. He also observes

that, while on the one hand decision making is individualistic; a significant degree of order and

coherence is infused by the institutional and social structures.

Capital markets have evolved as highly 'liquid institutions’ wherein individual investors can

transact at will. Given that transactions occur in an uncertain environment it is legitimate to

hypothesize an element of speculation (gambling spirit) in trading it is evident that many

investors do not buy stocks for "keeps" but rather to resell them on the very near future in the

hope of making a gain. Will such investors be guided primarily by manager in fundamental

values? Probably not. Anecdotal evidence abounds with day trading as a prime example. While

one cannot conclude that the market consists merely of speculators, it is plausible that they may

form a substantial group even with the enormous growth of institutional investors. And, if we

agree with that, we will have to concede the debate to Keynes.

2.27.6 Section Summary

Undoubtedly, the studies based on EMH have made an invaluable contribution to an

understanding of the securities market. However, there seems to be drawing discontentment with

the theory. A limited survey of the contemporary literature that criticism of EMH has gained

both voice and momentum during recent years. While it is true that the market responds to new

information, it is now clear that information is merely only variable affecting security valuation.

Recent years have witnessed a new wave of researchers who have provided thought provoking,

theoretical arguments and supporting empirical evidence to show that security prices could

deviate from their equilibrium valves due to psychological factors, fads, and noise trading.

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CHAPTER THREE

RESEARCH DESIGN/METHODOLOGY

3.1 INTRODUCTION

This chapter will discuss the methodology adopted in the study. Specifically, it explains the

research design, population of the study, sample and sampling techniques, sources of data

collection, method of data analysis, model specifications, and also stating areas for further

research.

3.2 RESEARCH DESIGN

The researcher’s aim in this study is to ascertain whether dividend payment has any impact on

market share price on the Stock Exchange with particular references to thirty (30) quoted firms

in Nigeria. The study covers a period of twelve (12) years from 1995 - 2006.

Specifically, firms that made up our sample are those equities (common stocks) that are traded

on the floor of Nigerian Stock Exchange (NSE). The target size of thirty (30) quoted firms will

be drawn from various sub-sections/industries, based on the NSE classification.

The Annual Financial Statements of the respective firms for twelve (12) years running would be

our major focus. The necessary data for our analysis are to be obtained from various years of

NSE FACTBOOKS, and NSE daily Official List (various years).

3.4 POPULATION OF THE STUDY

The population of this study constituted the 204 listed equities/ordinary shares of quoted firms

whose stock are also been traded on the floor of the NSE at least for the past twelve (12) years.

There are about twenty-eight sub-sectorial classifications of quoted firms on the NSE, while

about twelve (12) sub-sectors/industries will be chosen for the analytical studies. The subsectors

chosen had already been mentioned in chapter one (1) under the scope of the study. And this

classification portrays kinds of economic activities of all business organisations operating in the

country.

3.5 THE SAMPLE AND SAMPLING TECHNIQUE

The researcher obtained his sample using data from (i) Nigerian Stock Exchange (NSE) Daily

official list to generate the market per share data on the firms under study. And also obtained

another sample by using data on NSE FACTBOOKS for various years to generate the Dividend

Per Share (DPS) data on the firms under study respectively, since he is interested in knowing the

impact of dividend payment on market share prices. Having this purpose in mind, the most active

firms were chosen, and in ranking more than thirty (30) firms whose stocks are listed or publicly

traded on the floor of the Nigerian Stock Exchange (NSE) during the period (1995–2006)

qualified, the researcher then used judgmental sampling to choose the most active firms.

This sample of the thirty (30) stocks cut across twelve (12) subsectors/industries of:

• Automobile & Tyre

• Banking

• Breweries

• Building Materials

• Chemical and Paints

• Conglomerates

• Construction

• Food Beverages and Tobacco

• Healthcare

• Industrial/Domestic Products

• Petroleum (Marketing), and,

• Printing & Publishing

Specifically, two (2) stocks - Dunlop Nigeria PLC and R. T. Briscoe Nigeria PLC were chosen

from the Automobile and tyre subsector; three (3) stocks - First Bank of Nigeria PLC, United

Bank for Africa (UBA) PLC, and Union Bank of Nigeria (UBN) PLC – were chosen from the

banking subsector; Two (2) stocks –Nigerian Breweries PLC and Guinness Nigeria PLC were

selected from the Breweries subsector; Two stocks - Ashaka Cement PLC and West African

Portland Cement PLC were picked from Building Materials subsector; Berger Paints PLC and

CAP PLC from chemicals and Paints; five (5) from Conglomerates subsector (John Holt PLC,

Unilever Nigeria Plc, PZ Industries Plc, UAC Plc, and AG Leventis Plc ); then, Cappa and ‘D’

Alberto PLC and Julius Berger Nigeria PLC were selected from construction subsector; next are

7up Bottling Company. PLC, Cadbury Nigeria PLC, Flour Mills Nigeria PLC, Nestle food

Nigeria PLC, Nigerian Bottling Company PLC, which were selected from Food, beverages and

Tobacco subsector; in the Health subsector we have May and Baker Nigeria PLC and Neimeth

International Pharmaceutical PLC; Vitaform only was picked from the Industrial/Domestic

Product subsector; while, Mobil Nigeria PLC, Texaco Nigeria PLC and Total Nigeria PLC was

selected from the Petroleum (Marketing) subsector; and finally one stock (Longman Nigeria

PLC) was chosen from the Printing and Publishing subsector of the economy. The researcher's

decision to choose from the above listed stocks was influenced by the following judgment: Such

as; the relative strength of capitalization, length of quotation, and most significantly availability

of requisite data since the study is highly analytical.

3.6 SOURCES OF DATA COLLECTION

The sources that were used for collecting data for this research are the secondary source of data

collection. They were obtained from various issues of: (i) Nigerian Stock Exchange (NSE)

Annual Reports and Statement of Accounts, (ii) various issues of NSE FACTBOOKS, (iii)

several volumes of NSE Monthly Stock Market Review, and, (iv) NSE daily official list. Other

data obtained were from various issues of the Central Bank of Nigeria Statistical Bulletin, CBN

Annual Reports and Statement of Accounts. More so, other data that was gathered include those

from; Textbooks, Journals, from various University libraries (Nsukka, Enugu Campus, Abuja,

Lagos, Ife, Ibadan et cetera). Source data were equally obtained from various issues of Securities

and Exchange Commission (SEC) Statistical and Economic Bulletin, and, SEC Annual Reports

and Accounts. The researcher introduced various instruments so as to contribute to the in-depth

knowledge on share price movement as a result of dividend payment and other endogenous and

exogenous variables to make this research outstanding.

3.7 DATA ANALYSIS INSTRUMENT

The researcher stated various instruments used in this study which was used to analyze the data

collected from various sources.

Statistical and Econometrics approaches (like: Simple Linear Regression (SLR) Techniques) was

applied in the analysis and involving Time Series Data also. A large number of works on this

analysis of stock prices have applied Regression equations and have been found useful see

Harkavy (1953:283); Morgan and Taylor (1957:116); Baryosef and Kolodny (1976). But in most

of the works, cross-section data were used as this possess some statistical limitations leading to

bias results. For instance, Friend and Puckett (1964:660) observed that these limitations are

associated with lack of homogeneity in the assumed underlying stock population between firms

in the industry. This problem, they argued occurs because of omitted variables (risk, external

finance etc. and the problem of regression weighting). They maintained that firms in an industry

differ in size, product differentiation and leverage, that is, they differ in risk. Given that risk is

negatively related to prices, and to dividend coefficient.

In view of this, Friend and Puckett (1964:670), Durand (1955) and Harkavy (1953:28-3) contend

that regression analysis using time series information of an individual firm is proper for

analyzing stock prices. The research covers the period of twelve (12) years from 1995 - 2006.

The basis for choosing this period is that it ensures the availability of data.

3.8 MODEL SPECIFICATION

The objective of this section is to develop models to employ to find the validity of the

hypothesis: that dividend payment influences movement of stock prices of common stock of

quoted firms on the Nigerian Stock Exchange (NSE). Thus, the impact of dividend payment on

share prices.

Simple Linear Regression (SLR) Technique (applying time series), and Analysis of Variance

(ANOVA) Technique were also used to generate the models in this study. Simple Linear

Regression (SLR) technique was used to determine the relationship between the dependent

variable (Y), and independent variable (X), (see Koutsoyiannis, 2003:48-50). While, Analysis of

variance (ANOVA) Techniques was also used in testing whether significant variation exists

between the dependent variable (X) and independent variable (Y) (see Dibua, and Dibua 2005:

115 – 118). Hence, the model specification for this study is Simple Linear Regression (SLR)

Technique, and Analysis of Variance. (ANOVA) Techniques. Simple Linear Regression (SLR)

Technique was used in testing the first and second hypotheses while Analysis of Variance

(ANOVA) Technique was used in testing the third hypothesis.

A. In the first hypothesis it will determine the influence of dividend payment on movement of

share prices of quoted firms on the Nigerian stock Exchange (NSE). The dependent

variable (Y) is movement of share prices, and independent or predictor variable (X) is the

dividend payment. This test was carried out among the 30 selected quoted firms in the

Nigerian Stock Exchange. The simple linear regression is given as:

Y = a + b1 X1 + e................................................................................. (1)

Where:

Y = Dependent variable

a = Constant of the regression equation

b1 = Regression coefficient

X1 = Independent or predictor variable

e = Standard error.

However, the equation (1) is expressed in the test of hypothesis one as:

MPS = a+b, dps,+ e.................................................................................(2)

Where:

MPS = Market Price Per Share


b = regression coefficient

dps = Dividend Per Share (dependent or predictor variable)

e = Standard error

B. Also, in the second hypothesis, Simple Linear Regression was used to determine the

relationship between changes in share prices (dependent variable – Y) and the size of the

dividend payout ratio (independent variable – X). Simple Linear Regression (SLR) is

expressed in the hypothesis two (2) as follows:

Cps= a b1 dpr + e ……………………………………………………………(3)

Where:

cps = Changes in share prices


b1 = Regression coefficient

dpr = Size of the dividend payout ratio

e = Standard error

C. The Analysis of Variance (ANOVA) techniques was used in the third hypothesis to

determine whether is a significant variation in the trends of share prices among the

various quoted firm in the Nigerian Stock Exchange. The dependent variable (Y) is the

trend of share prices, while the independent variable (X) is the thirty (30) selected quoted

firms in the Nigerian Stock Exchange.

The equation for Analysis of variance (ANOVA) is given as:

SST = �X2 – (�X)2 ......................................................................................... (4) N

SSb = (�X1)2 + (�X2)2 + (�X3)2 + (�X1)2 ……………………………….. (5) N N N N

SSw = SST – SSb …………………………………………………………. (6)

Where:

SST = Total Variation

SSb = variation between groups

SSw = variation within groups

3.9 AREA FOR FURTHER RESEARCH

This study paves way for a host of future research. Due to the two major variables: dividend

payment and share prices we are considering in the study, we limited our work to Simple Linear

Regression (SLR) techniques in determining the relationship between the two variables in the

first and second hypotheses. And also, using Analysis of Variance (ANOVA) techniques in

determining whether there are significant variation exist between the two variables in the third

hypotheses.

One area that could be taken up in years to come is the empirical analysis of the effect of

dividend payments and retained Earnings, on share prices stating evidence from all quoted

companies in Africa and even the World in general, therefore, discovering some constructive

useful empirical evidences that will provide investors and management with a lot of tools for

making long term investment decisions base on dividend payment, stock repurchase, stock

returns, retained earning, and irrational stock behaviour in the NSE with the view of fashioning

policies that will suit them.

REFERENCES

Asika, N. (2000), Research Methodology in Behaviourial Sciences, 1 ed, Lagos Nigeria:

Longman Nigeria PLC.

Bar-Yosef and Kolodney (1976), Dividend Policy and Capital Market Theory, Review of

Economics Statistics.

Brennan, M. (1976), "Corporate Finance and the Capital Asset Pricing Model", The Journal of

Finance, 27 (2): 316 - 318.

Bank Stock and Analysis of Covariance, (1955), Econometrica.

Ferson, W.E.,'S. Sarki'sssian, and T. Simin (2003), "Spurious Regressions in Financial

Economics?" Journal of Finance, 58 (4): 1393 - 1413.

Fuller, R. J. and J. L. Farrel (1987), Modem Investments and Security Analysis, 1 ed, New York:

McGraw - Hills Inc.

Gordon, M. (1962), The Savings, Investment and Valuation of a Corporation, Review of


Graham, D. and Dodd, G. (1951), Security Analysis, New York: McGraw Hills.

Heckman. J. J. (2001), "Econometrics and Empirical Economics", Journal of Econometrics, 100

(1): 7-10.

Koutsayianuis, A. (1982), Non-Price Decisions, The Firm in a Modern Context: London:

MacMillian Press LTD.

Koutsayianuis, A. (2003), Theory of Econometrics, 2 ed, Hampshire: Palgrave.

Modighiani, F. and Miller, M. H., (1961), "Dividend Policy and Growth and the Valuation of

Share", Journal of Business, 34 (4): 411.

Tauchem, G. (2001), "Notes On Financial Econometrics", Journal of Econometrics, 100 (l): 57-

64.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

This chapter of the study is devoted to presentation of data, Analysis of data, interpretation of

data and discussion of findings. The data sourced from secondary source were empirically

analyzed, tested and adequately interpreted to show the authenticity or otherwise the tentatively

held hypothesis by the researcher. All these were done to achieve the objectives of the study.

The empirical analysis was done around research questions and objectives of the study. Table

4.2.0 to 4.3.0 shows the presentation of data to be used in the analysis. Having time saving data

also, Computer aided “Microsoft Special Packages for Social Sciences (SPSS) pad were used to

aid analysis. The significance level of 0.05 was considered in the test and analysis of the result.

4.2 DATA PRESENTATION

INTRODUCTION

The time series data used for the analysis of the entire three (3) hypotheses formulated, tested,

analyzed and interpreted were systematically presented in this particular section of the study.

These data were computed from various years of publications of the Nigerian Stock Exchange

(NSE) FACTBOOKS; and NSE daily official lists that covers the time range of 1995-2006;

which is the period under study.

TABLE 4.2.0

A SUMMARY OF DIVIDENDS AND MARKET PRICE OF STOCKS OF VARIOUS

FIRMS UNDER STUDY BETWEEN 1995 – 2006

Table 4.2.1: Dunlop Nigeria Plc

Data source: NSE

Factbook and

Daily Official List

various years.

NB: DPS = Dividend per share


In table 4.2.1, the market share price was N16.03 in 1995 and DPS was 0.60, while in 1999 the

price slightly fell to N4.70 because no dividend was paid for that year. Then in 2002 – 2006 the

share price remained approximately same because no dividend was paid for those years.

X Y

Year DPS MPS

1995 0.60 16.03

1996 0.70 10.40

1997 0.42 8.60

1998 0.29 5.75

1999 0 4.70

2000 0.15 4.21

2001 0.15 3.40

2002 0 2.41

2003 0 2.26

2004 0 2.58

2005 0 2.28

2006 0 2.30

Table 4.2.2: R. T. Briscoe Nigeria Plc

Data source: NSE Factbook and Daily Official List various years.


MPS = Market price per share

The table 4.2.2, the increase or decrease in the DPS from 1995-2006 did not significantly affect

the MPS for that some number of years.

X Y

Year DPS MPS

1995 222.77 2.51

1996 11.00 3.24

1997 18.00 3.34

1998 0 2.90

1999 0 1.93

2000 0 1.42

2001 0.24 2.37

2002 0.28 2.69

2003 0.35 5.21

2004 0.25 7.22

2005 0.35 5.90

2006 0.50 5.10

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Table 4.2.3: First Bank of Nigeria Plc

X Y Year DPS MPS 1995 0.70 6.58 1996 0.56 6.90 1997 0 12.94

1998 1.00 9.60 1999 1.00 13.16 2000 1.25 20.40 2001 1.30 27.95 2002 1.30 23.10 2003 1.50 23.99 2004 1.55 25.95 2005 1.60 31.00 2006 4.00 29.99


Note: DPS = Dividend per share


In table 4.2.3 the DPS increased in the year 1998-2006, and MPS also increases in those same

number of years, except in 1995-1997 (3yrs) only when there was a little instability in both

DPS & MPS.

Table 4.2.4: United Banks for Africa (UBA) Plc

X Y Year DPS MPS 1995 0.17 4.83 1996 0.33 5.85 1997 0.10 8.78 1998 0.30 8.12 1999 0.58 8.61 2000 0.85 16.41 2001 0.25 12.13 2002 0.30 7.90 2003 0.45 8.34 2004 0.60 10.05

2005 0.60 11.20 2006 1.00 10.82




In table 4.2.4, as dividend was constantly paid, from 1995-2006 between N0.10k to N0.85k,

MPS equally rises and falls between N 4.85k to N16.4k for that same year.

Table 4.2.5: Union Bank of Nigeria (UBN) Plc

X Y

Year DPS MPS

1995 0.20 4.94

1996 0.32 6.11

1997 0.35 11.90

1998 0.70 10.00

1999 1.05 10.43

2000 0 21.30

2001 1.50 31.96

2002 0.70 21.48

2003 0.76 26.88

2004 1.05 28.60

2005 1.40 25.04

2006 1.00 27.01


Note: DPS = Dividend Per Share


In table 4.2.5, as DPS rose in 1995-1997, MPS also increased until when MPS slightly fell

between 10.00k-10.43k in 1998- 1999, and then rose in 2000 to 23.30k But in 2001 to 2006 MPS

remained in the range of N21.30-N31.96

Table 4.2.6: Nigeria Breweries Plc

X Y

Year DPS MPS

1995 0.85 17.00

1996 48.43 17.15

1997 48.43 16.03

1998 65.38 17.87

1999 121.07 17.98

2000 158.00 22.66

2001 112.50 31.43

2002 2.10 29.90

2003 1.10 49.45

2004 0.40 54.80

2005 1.05 32.41

2006 1.20 42.84




In table 4.2.6, the fluctuations in DPS did not significantly affect the MPS from 1995-2006.

Table 4.2.7: Guinness Nigeria Plc

X Y Year DPS MPS 1995 0 11.54 1996 0.80 9.35 1997 1.00 7.25 1998 0.60 10.30 1999 1.80 20.70 2000 2.40 25.47 2001 3.00 36.15 2002 3.75 46.25 2003 7.92 75.75 2004 5.25 139.00 2005 3.00 91.50 2006 4.00 102.21




In table 4.2.7, the MPS only fluctuated between N7.25-N11.54 in 1995-1998 as a result of the

fluctuation of DPS for those same years. But from 1999 – 2006 MPS rises as DPS rises.

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Table 4.2.8: Ashaka Cement Plc

X Y Year DPS MPS 1995 0.36 8.88 1996 0.18 13.98 1997 0.20 11.48 1998 0.20 7.45 1999 0.30 6.93 2000 0.60 6.88 2001 0.75 18.81 2002 0.60 18.00 2003 1.70 15.30 2004 2.85 20.50 2005 2.32 27.55 2006 1.50 30.01




In table4.2. 8, the increase and decrease in MPS is independent on the fluctuations in DPS.

Table 4.2.9: West African Portland Cement (WAPCO) Plc

X Y

Year DPS MPS

1995 0.42 13.74

1996 0.60 35.15

1997 0.60 53.60

1998 0.80 31.25

1999 0.50 26.38

2000 0 20.84

2001 0 32.19

2002 0 22.86

2003 0 16.56

2004 0 14.15

2005 0.30 13.83

2006 1.00 16.10




In table 4.2.9, MPS rose from N13.74 to N53.60 between 1995-1997, while DPS equally rose

from 42k-60k in the same 1995-1997. Then between 1998-2004 the MPS was fluctuating

between N14.15-N32.19 irrespective of irregular dividend payment within those same years.

Until 2005-2006 when there was slight increase in both MPS & DPS.

Table 4.2.10: Berger Paints Nigeria Plc

X Y

Year DPS MPS

1995 0.40 6.70

1996 23.27 5.35

1997 23.28 3.80

1998 23.27 3.40

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1999 0.30 4.30

2000 0.10 2.99

2001 0.30 2.63

2002 0.33 2.32

2003 0.40 2.68

2004 0.30 4.40

2005 0 3.66

2006 0 4.26




In table 4.2.10, the rise and fall in MPS is independent on the fluctuations in DPS.

Table 4.2.11: Cap Plc

X Y Year DPS MPS 1995 40.00 6.02 1996 0 7.35 1997 0 3.91 1998 0 3.76 1999 0 2.8 2000 0 1.46 2001 0.25 3.06 2002 0.40 3.32 2003 0.50 3.44 2004 0.55 6.76 2005 0.70 7.93 2006 1.00 8.12




In table 4.2.11, the decrease in MPS from 1996 – 2000 was not dependent on the non- payment

of dividend in those same number of years. Moreso, even if in 2001 -2006 MPS rises as DPS

rises, yet the simultaneous rise was not as a result of the either variable.

Table 4.2.12: Trans-Nationwide Express Plc

X Y Year DPS MPS 1995 0.10 0.77 1996 0.10 0.96 1997 0.10 1.32 1998 0.5 1.44 1999 0 1.44 2000 0 1.39 2001 0 1.10 2002 0 1.05 2003 0 1.05 2004 0 1.05 2005 0 1.00 2006 0.10 1.00




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In table 4.2.12, the fluctuation of DPS from 1995-1998, did not significantly influence the MPS

for those same years. And non -payment of dividend from 1999-2005 did not also significantly

affect the MPS for those years.

Table 4.2.13: John Holt Nigeria Plc

X Y Year DPS MPS 1995 0.30 10.59 1996 0.30 10.93 1997 0.35 9.00 1998 0.15 6.88 1999 0 3.22 2000 0 1.41 2001 0 2.46 2002 0 1.14 2003 0 0.66 2004 0.10 0.97 2005 0 1.14 2006 0 1.01




In table 4.2.13, the MPS only fluctuated between N6.88 to N10.93 in 1995-1998 as a result of

fluctuations in DPS for those number of years. Then between 1999-2006 there were

irregularities in dividend payment which also affected the MPS.

Table 4.2.14: Unilever Nigeria Plc

X Y

Year DPS MPS

1995 1.25 21.26

1996 0.95 21.28

1997 0 19.75

1998 0.11 6.80

1999 0.35 7.6

2000 0.70 11.84

2001 1.04 26.16

2002 0.50 17.58

2003 0.61 16.75

2004 0.70 16.48

2005 0 17.86

2006 0 18.10




In table 4.2.14, the increase and decrease of MPS was independent on the fluctuation in DPS

from 1995-2006.

Table 4.2.15: P.Z Industries Nigeria Plc

X Y

Year DPS MPS

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1995 0.20 15.96

1996 0.30 32.01

1997 0.27 20.30

1998 0.27 8.00

1999 0.31 7.39

2000 0.40 8.53

2001 0.45 12.41

2002 0.57 8.55

2003 0.66 8.66

2004 0.75 13.88

2005 0.75 14.41

2006 0.69 15.11




In table 4.2.15, the DPS has no effect on the MPS of P.Z industries PLC in that the fluctuations

in MPS from 1995-2006 within N7.39 to N32.01 was not as a result of fluctuation in DPS from

1995-2006.

Table 4.2.16: UAC of Nigeria Plc

X Y

Year DPS MPS

1995 80.00 9.52

1996 70.00 9.58

1997 60.00 13.48

1998 60.00 8.05

1999 0 3.57

2000 0 3.41

2001 0.15 3.66

2002 0.35 3.74

2003 0.60 7.61

2004 0.85 14.17

2005 1.00 15.25

2006 1.00 18.01




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In table 4.2.16, the DPS portrayed a downward trend within 1995-1998 from N80.00 to N60.00.

Then between 1998 and 1999 there was no payment of dividend. And between 2001-2006 there

were variations in DPS yet did not significantly affect the MPS.

Table 4.2.17: A. G. Leventis Plc

X Y

Years DPS MPS

1995 7.5 2.68

1996 10.00 1.43

1997 12.00 2.19

1998 0 1.60

1999 0 1.25

2000 0.15 1.20

2001 0.6 1.05

2002 0.7 0.64

2003 0.7 0.63

2004 0.7 1.27

2005 0.8 0.96

2006 0 1.25


NB: DPS = Dividend Per Share


In table 4.2.17, the fluctuation in DPS affected the MPS from 1995-2006.

Table 4.2.18: Cappa And ‘D’ Alberto Nigeria Plc

X Y

Years DPS MPS 1995 26.7 2.73 1996 40.0 6.84 1997 9.0 13.35 1998 25.0 12.11 1999 21.4 10.28 2000 34.3 9.04 2001 40.0 7.85 2002 0 7.73 2003 0.20 7.56 2004 0.30 7.25 2005 0.50 11.12 2006 0.30 12.11 Data Source: NSE Factbook and Daily Official List various years.

In table 4.2.18, the rise of MPS between 1995-1997 from N2.73-N13.35 and subsequent fall

between 1998 – 2004 from N12.11 to N7.25 was totally independent on the fluctuations in DPS

from 1995-2006.

Table 4. 2.19: Julius Berger Nigeria Plc

X Y Years DPS MPS 1995 22.50 7.46 1996 30.00 8.98 1997 34.00 9.74 1998 40.00 9.20 1999 36.00 12.82 2000 50.00 26.36 2001 50.00 46.23 2002 25.00 21.00 2003 15.00 20.17 2004 25.00 16.54 2005 70.00 21.48 2006 0 23.19 Data source: NSE Factbook and Daily Official List various years.



In table 4.2.19, the increase and decrease in MPS from 1995-2006 within N7.46-N46.23 was not

as a result of the fluctuation of DPS for those same number of years.

Table 4.2.20: 7-Up: Bottling Company Plc

X Y Years DPS MPS 1995 0.20 1.68 1996 17.28 1.81 1997 29.93 2.63 1998 25.93 2.73 1999 0.35 3.06 2000 0.40 3.78 2001 0.40 5.45 2002 0.60 5.79 2003 0.75 17.69 2004 1.00 27.00 2005 1.25 27.14 2006 1.25 28.00 Data source: NSE Factbook and Daily Official List various years.



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In table 4. 2. 20, the continuous rise in MPS from 1995-2006 (from N1.68-N28.00) was not

dependent on the fluctuations of DPS between 1995 to 2006 also.

Table 4.2.21: Cadbury Nigeria Plc

X Y

Years DPS MPS

1995 1.00 16.73

1996 1.50 21.23

1997 0.67 29.40

1998 0.73 18.05

1999 1.00 15.29

2000 1.10 16.59

2001 1.20 29.25

2002 1.50 30.93

2003 1.75 50.50

2004 1.60 64.48

2005 1.30 57.04

2006 0 59.78




In table 4.2.21, MPS rises and falls between 1995 – 2006 yet the cause can not be traced to the

fluctuation in DPS for those various years.

Table 4.2.22: Flour Mills Nigeria Plc




In table 4.2.22, within 1995-1997 MPS rise as DPS rises, then from 1998-2006 there were

increase and decrease in MPS which was not associated with increase and decrease in DPS

within those same number of years (1998-2006).

Table 4.2.23: Nestle Food Nigeria Plc

X Y Years DPS MPS 1995 2.87 17.99 1996 6.00 39.15 1997 1.50 43.03 1998 1.70 21.65 1999 2.00 22.80

2000 3.75 36.58 2001 5.50 64.50 2002 7.50 76.05 2003 7.00 106.26 2004 7.00 159.16 2005 10.00 162.50 2006 10.00 170.63 Data Source: NSE Factbook and Daily Official List various years.

In table 4.2.23, the MPS only fluctuated between N17.99-N43.03 in 1995-1999 as a result of

fluctuations in DPS in those same years. But from 2000-2006 MPS increases from N36.58-

N170.63 due to the increase in DPS from N3.75-N10.00 within those same years (i.e. 2000-

2006).

Table 4.2.24: Nigeria Bottling Company Plc

X Y

Years DPS MPS

1995 0 18.73

1996 71.0 25.54

1997 0.80 44.05

1998 0.85 24.60

1999 0 14.35

2000 0.30 12.90

2001 1.00 24.45

2002 1.50 29.25

2003 1.60 50.25

2004 1.20 64.13

2005 0.60 57.68

2006 0.30 59.90




In table 4. 2. 24, the decrease and increase in MPS was not as a result of decrease and increase in

DPS within those same number of years.

Table 4.2.25: May and Beker Nigeria Plc

X Y

Years DPS MPS

1995 2.0 1.82

1996 20.0 3.13

1997 30.0 4.10

1998 30.0 3.50

1999 25.3 3.12

2000 1.3 4.19

2001 21.0 3.05

2002 0 1.91

2003 25.0 3.01

2004 0 5.57

2005 30.0 5.08

2006 0.30 6.10


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In table 4.2.25, MPS only increase as DPS increases in 1995-1997. But from 1998-2006, the

increase and decrease in MPS was not as a result of the increase and decrease in DPS.

Tale 4.2.26: Neimeth International Pharmaceutical Plc

X Y

Years DPS MPS

1995 0.30 4.91

1996 0.30 7.23

1997 0.56 7.70

1998 0.39 7.35

1999 0 5.44

2000 0 5.37

2001 0 5.44

2002 0.8 4.95

2003 0.10 2.32

2004 0.15 2.71

2005 0.20 3.47

2006 0.10 3.89




In table 4.2.26, the fluctuations in DPS did not affect the MPS between 1995-2006 (i.e. period

under study).

Table 4.2.27: Vitafoam Nigeria Plc

X Y

Years DPS MPS

1995 25.00 7.42

1996 35.00 4.71

1997 40.00 4.45

1998 25.00 2.95

1999 30.00 3.40

2000 25.00 3.50

2001 40.00 4.28

2002 40.00 4.75

2003 30.00 3.80

2004 30.00 3.59

2005 15.00 4.04

2006 0.12 4.98




In table 4.2.27, MPS rises and falls but not in line with DPS.

Table

4.2.28: Mobil Nigeria Plc

X Y Years DPS MPS 1995 835.00 21.82 1996 530.00 41.54 1997 323.00 63.23 1998 4.63 56.63 1999 5.79 58.21 2000 5.79 61.50 2001 5.79 64.35 2002 6.65 62.83 2003 6.06 108.00 2004 6.50 188.00 2005 9.10 160.00 2006 0 162.06 Data source: NSE Factbook and Daily Official List various years.



In table 4.2.28, there were fluctuation in MPS which was not influenced by a similar fluctuation

in DPS.

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Table 4.2.29: Texaco Nigeria Plc

X Y Years DPS MPS 1995 0 10.59 1996 1.16 27.08 1997 1.00 36.27 1998 1.50 32.45 1999 3.50 24.57 2000 5.50 45.01 2001 2.68 65.50 2002 2.99 54.01 2003 0 114.62 2004 3.00 178.97 2005 4.10 120.99 2006 4.20 125.11 Data source: NSE Factbook and Daily Official List various years.



In table 4.2.29, there were increase DPS from N10.59-N36.27 within 1995-1997 yet DPS for

those same years was not stable. The same reactions occurred in the other years.

Table 4.2.30: Total Nigeria Plc




In table 4.2. 30, MPS tends to rises as DPS rise in most cases.

TABLE 4.3.0: A SUMMARY OF DIVIDEND PAYOUT RATIO AND MARKET PRICES

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– 2006

Table 4.3.1: Dunlop Nigeria Plc

X Y

Years DPR MPS

1995 0.5 16.03

1996 0.71 10.40

1997 0.61 8.60

1998 0.57 5.75

1999 0 4.70

2000 0.48 4.21

2001 0.38 3.40

2002 0 2.41

2003 0 2.26

2004 0 2.58

2005 0. 2.28

2006 0 2.30


NB: DPR = Dividend Payout Ratio


In table 4.3.1, MPS remained within the range of N3.40-N16.03 in 1995-2001 because the firm

was still paying part of it’s earnings as dividend. But from 2002-2006 MPS remained within the

range of N2.26-N2.58 because the firm did not pay part of it’s earnings as dividend to the

shareholders anymore.

Table 4.3.2: R. T. Brisce Nigeria Plc

X Y Years DPR MPS 1995 10.40 2.51

1996 0.35 3.24 1997 0.25 3.34 1998 0 2.90 1999 0 1.93 2000 0 1.42 2001 0.19 2.37 2002 0.26 2.69 2003 0.13 5.21 2004 0.32 7.22 2005 0.64 5.90 2006 0.34 5.10 Data source: NSE Factbook and Daily Official List various years.



In table 4.3. 2, the increase and decrease in MPS was not dependent on the firm’s DPR from

1995-2006.

Table 4.3.3: First Bank of Nigeria Plc

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Years DPR MPS 1995 0.40 6.58 1996 0.34 6.90 1997 0 12.94 1998 0.56 9.60 1999 0.33 13.16 2000 0.36 20.40 2001 0.43 27.95 2002 0.58 23.10 2003 0.35 23.99 2004 0.47 25.95 2005 0.48 31.00 2006 0.63 29.99 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.3, the increase and decrease in DPR did not influence the MPS because in some

cases like in 1996, 1997, 1999, 2003 etc when DPR falls MPS rises vice-versa.

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Table 4.3.4: United Bank for (UBA) Africa Plc

X Y Years DPR MPS 1995 0.29 4.83 1996 0.48 5.85 1997 0.11 8.78 1998 1.25 8.12 1999 0.48 8.61 2000 0.27 16.41 2001 0.36 12.13 2002 0.33 7.90 2003 0.35 8.34 2004 0.34 10.05 2005 0.36 11.20 2006 0.54 10.82 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.4, the fluctuation in MPS was not as a result the increase and decrease in DPR.

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Table 4.3.5: Union Bank of Nigeria (UBN) Plc

X Y Years DPR MPS 1995 0.28 4.94 1996 0.0035 6.11 1997 0.0034 11.90 1998 0.47 10.00 1999 0.41 10.43 2000 0 21.30 2001 1.01 31.96 2002 0.66 21.48 2003 0.51 2.88 2004 0.61 28.60 2005 0.67 25.04 2006 0.58 27.01 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.5, fluctuation in DPR is dependent on the fluctuations in MPS.

Table 4.3.6: Nigeria Breweries Plc

X Y Years DPR MPS 1995 0.004 17.00 1996 0.51 17.15 1997 0.58 16.03 1998 0.58 17.87 1999 0.66 17.98 2000 0.70 22.66 2001 0.93 31.43 2002 0.01 29.90 2003 0.01 49.45 2004 0.60 54.80 2005 0.96 32.41 2006 0.83 42.84 Data source: NSE Factbook and Daily Official List various years.

NB: DPR = Dividend Payout Ratio MPS = Market Price Per Share

In table 4.3.6, the fluctuation or the significant rise and fall in MPS from 1995-2006 is not

associated with DPR in those same years. But both variable reacts in opposite direction in most

case. E.g. the MPS decreased from N17.15-N16.03 between 1996-1997 while DPR increase

from N0.50-N0.58 in those same years.

Table 4.3.7: Guinness Nigeria Plc

X Y Years DPR MPS 1995 0.00 11.54 1996 0.99 9.35 1997 0.98 7.25 1998 0.46 10.30 1999 0.48 20 .70 2000 0.55 25.47 2001 0.51 36.15 2002 0.64 46.25 2003 0.85 75.75 2004 0.78 139.00 2005 0.73 91.50

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2006 0.63 102.21 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.7, the reactions of both MPS and DPR is still in opposite direction. The increase or

decrease in MPS is not influence by the increase of decrease in DPR.

Table 4.3.8: Ashaka Cement Plc

X Y

Years DPR MPS

1995 0.002 8.88

1996 0.001 14.00

1997 0.001 11.48

1998 0.002 7.45

1999 0.004 6.93

2000 0.004 6.88

2001 0.002 18.81

2002 0.003 18.00

2003 0.71 15.30

2004 0.01 20.50

2005 0.01 27.55

2006 0.65 30.01




In table 4.3.8, the DPR did not influence MPS of Ashaka Cement Plc over the years. By 1996,

1997, 2004, and 2005 the DPR figure was N0.01 but the MPS was N14.00, N11.48, N20.50 and

N27.55 respectively. This implies that the fluctuation of MPS is independent on DPR from 1995

– 2006.

Table 4.3.9: West African Portland Cement Plc

X Y

Years DPR MPS

1995 0.08 13.74

1996 0.18 35.15

1997 0.21 53.60

1998 0.26 31.25

1999 0.12 26.38

2000 0 20.84

2001 0 32.19

2002 0 22.86

2003 0 16.51

2004 0 14.15

2005 0.33 13.83

2006 0.28 16.10




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In table 4.3. 9, DPR rose from N0.08 t N0.21 between 1995-1997 while MPS equally rose from

N13.74 to N53.60 in those number of years. But in 1998 and 1999 downtrend occurred in both

DPR and MPS, until 2000-2004 when the firm did not pay any part of it’s earnings as dividend,

yet MPS still maintained it’s value between N14.15-N32.19. Finally in 2005 and 2006 there was

downward trend in DPR which did not influence the MPS for those years.

Table 4.3.10: Berger Paints Nigeria Plc

X Y

Years DPR MPS

1995 1.00 6.70

1996 0.004 5.35

1997 0.76 3.80

1998 0.35 3.40

1999 0.64 4.30

2000 0.02 2.99

2001 0.01 2.63

2002 0.01 2.32

2003 0.01 2.68

2004 0.01 4.40

2005 0.00 3.66

2006 0.00 4.26




In table 4.3.10, the reaction of MPS in not dependent on increase and decrease in DPR from

1995-2006.

Table 4.3.11: Cap Plc

X Y

Years DPR MPS

1995 0.53 6.02

1996 0 7.35

1997 0 3.91

1998 0 3.76

1999 0 2.80

2000 0 1.46

2001 0.08 3.06

2002 0.48 3.32

2003 0.56 3.44

2004 0.71 6.68

2005 0.73 7.93

2006 0.67 8.12




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In table 4.3.11, MPS was N6.02 when DPR was N0.53k, though MPS rose to N7.35 in 1996, but

fell from N3.91 to N1.46 between 1997-2000 due to the fact no percentage of the firm’s earnings

was distributed to shareholders as profit for those number of years. However, from 2001-2006

MPS increased from N3.06 to N8.12 as DPR equally increase from N0.08 to N0.73 between

2001-2005.

Table 4.3.12: Trans-National Wide Express Plc

X Y

Years DPR MPS

1995 0.34 0.77

1996 0.004 0.96

1997 0.01 1.32

1998 0.07 1.44

1999 0 1.44

2000 0 1.39

2001 0 1.10

2002 0 1.05

2003 0 1.05

2004 0 1.05

2005 0 1.00

2006 0.45 1.00




In table 4.3.12, there are irregularities in the firms DPR, but did not significant influence the

MPS. Because the MPS maintained it’s range of N0.77-N1.44 within 1995-2006.

Table 4.3.13: John Holt Nigeria Plc

X Y

Years DPR MPS

1995 0.002 10.56

1996 0.004 10.93

1997 0.01 9.00

1998 0.1 6.88

1999 0 3.22

2000 0 1.41

2001 0 2.46

2002 0 1.14

2003 0 0.66

2004 0.01 0.97

2005 0. 1.14

2006 0 1.01




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In table 4..3.13, the MPS and DPR was reacting in the opposite direction i.e. in most cases

increase in one variable might lead in the decrease in the other variable, vice-versa.

Table 4.3.14: Unilever Nigeria Plc

X Y

Years DPR MPS

1995 0.55 21.26

1996 0.71 21.28

1997 0 19.75

1998 1.00 6.80

1999 0.97 7.60

2000 0.99 11.84

2001 0.58 26.16

2002 0.10 17.56

2003 0.98 16.75

2004 1.23 16.48

2005 0 17.86

2006 0 18.10




In table 4.3.14, the fluctuations in MPS is not dependent on the fluctuations in DPR from 1995-

2006.

Table 4.3.15: P. Z. Industries Plc

X Y Year DPR MPS 1995 0.18 15.96 1996 0.15 32.01 1997 0.26 20.30 1998 0.34 8.00 1999 0.53 7.39 2000 0.63 8.53 2001 0.52 12.41 2002 0.49 8.55 2003 0.57 8.66 2004 0.63 13.88 2005 0.50 14.47 2006 0.48 15.11 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.15, MPS and DPR were behaving in the same direction in most cases, i.e. the

increase in DPR leads to an increase in MPS. Vice versa; except in 1996 to 1999.

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Table 4.3.16: UAC of Nigeria Plc

X Y Year DPR MPS 1995 0.43 9.52 1996 0.56 9.58 1997 0.68 13.48 1998 0.34 8.05 1999 0 3.57 2000 0 3.41 2001 0.14 3.66 2002 0.27 3.74 2003 0.25 7.61 2004 0.62 14.17 2005 0.79 15.25 2006 0.40 18.01 Data source: NSE Factbook and Daily Official List various years. NB: DPR = Dividend Payout Ratio MPS = Market Price Per Share In table 4.3.16, MPS increased from N9.52 to N13.48 as DPR increased from N0.48 – N0.68 in

1995-1997, until 1998 – 2000 when there was a fall in both MPS and DPR. Then between 2001 –

2006 MPS increases along with DPR significantly.

Table 4.3.17: A.G. Leventis Plc

X Y Year DPR MPS 1995 18.29 2.68 1996 41.67 1.43 1997 38.71 2.19 1998 0 1.60 1999 0 1.25 2000 0.50 1.20 2001 1.50 1.05 2002 0.88 0.64 2003 5.38 0.63 2004 6.36 1.27

2005 4.71 0.96 2006 0 1.25 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.17, the fluctuations in DPR did not significantly influence the MPS from 1995 –

2006. But there was a slight fall in MPS in 1998 and 1999 because no proportion of the firm’s

earnings was paid to investors as dividend.

Table 4.3.18: Cappa and ‘D’ Alberto Nigeria Plc.

X Y Year DPR MPS 1995 0.55 2.73 1996 0.32 6.84 1997 0.08 13.35 1998 0.23 12.11 1999 0.31 10.28 2000 0.29 9.04 2001 0.22 7.85 2002 0 7.73

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2003 0.001 7.56 2004 0.23 7.25 2005 0.23 11.12 2006 0.46 12.11 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.18, MPS and DPR were behaving in an opposite direction in some cases. That is, the

increase in DPR might lead to an increase in MPS vice-versa. Hence, the fluctuations in DPR is

independent on the fluctuations in MPS from 1995 – 2006.

Table 4.3.19: Julius Berger Nigeria Plc.

X Y

Year DPR MPS

1995 0.24 7.46

1996 0.30 8.98

1997 0.23 9.74

1998 0.22 9.20

1999 0.18 12.82

2000 0.26 26.36

2001 0.23 46.23

2002 0.15 21.00

2003 0.09 20.17

2004 0.15 16.54

2005 0.33 21.48

2006 0 23.19




In table 4.3.19, the variation in DPR cannot be attributed to the variation in MPS from 1995 –

2006.

Table 4.3.20: 7-Up Bottling Company Plc.



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In table 4.3.20, DPR increased from N0.01 to N0.87, and MPS also increased from N1.68 to

N1.81 in 2005 and 2006. Then from 1997 to 2006 variation in price of both DPR and MPS was

independent on each other.

Table 4.3.21: Cadbury Nigeria Plc.

X Y Year DPR MPS 1995 0.37 16.73 1996 0.61 21.23 1997 0.50 29.40 1998 0.52 18.05 1999 0.66 15.29 2000 0.54 16.58 2001 0.58 29.25 2002 0.50 30.93 2003 0.49 50.50 2004 0.57 64.48 2005 0.48 57.04 2006 0 59.78 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.21, the price fluctuation in MPS was not as a result of a similar fluctuation in DPR

from 1995 – 2006.

Table 4.3.22: Flour Mills Nigeria Plc.




In table 4.3.22, the DPR and MPS fluctuates in opposite direction from 1995 – 2006, revealing

that both MPS and DPR are independent on each other.

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Table 4.3.23: Nestle Food Nigeria Plc.




In table 4.3.23, the MPS increased from N17.99 to N39.15 in 1995 – 1997, yet DPR was

approximately within the range of N0.89 – N0.99. Then from 1998 – 2006 both MPS and DPR

reactions was independent on each other.

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Table 4.3.24: Nigeria Bottling Company (NBC) Plc.

X Y

Year DPR MPS

1995 0 18.73

1996 0.26 25.54

1997 0.32 44.05

1998 0.37 24.60

1999 0 14.38

2000 0.36 12.90

2001 0.33 24.45

2002 0.35 29.25

2003 0.34 50.25

2004 0.52 64.13

2005 0.34 57.68

2006 0.38 59.90




In table 4.3.24, MPS increased from N18.73 to N44.05 in 1995 – 1997, unitl in 1998 – 2001

when the two variables became inconsistent, but later in 2002 – 2006 the MPS was increasing as

DPS also increases though not at an exact amount (price).

Table 4.3.25: May and Baker Nigeria Plc.

X Y

Year DPR MPS

1995 0.03 1.82

1996 0.25 3.13

1997 0.71 4.10

1998 0.84 3.50

1999 0.29 3.12

2000 0.05 4.19

2001 0.33 3.05

2002 0 1.91

2003 0.57 3.01

2004 0 5.57

2005 0.64 5.08

2006 1.00 6.10




In table 4.3.25, the MPS increased from N1.82 – N4.10 and the DPR also increased from N0.03

to N0.71 between 1995 – 1997(just for 3 years). Then from 1998 – 2006 both MPS and DPR

were behaving in different direction.

Table 4.3.26: Neimeth International Pharmaceutical Plc.

X Y

Year DPR MPS

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1996 0.60 7.23

1997 0.85 7.70

1998 0.85 7.35

1999 0 5.44

2000 0 5.37

2001 0 5.44

2002 3.08 4.95

2003 0.27 2.32

2004 0.42 2.71

2005 0.38 3.67

2006 0.33 3.89




In table 4.3.26, MPS increased from N4.91 to N7.70 and DPR equally increased from N0.33 to

N0.85 between 1995 – 1997. Then from 1999 – 2001, the firm could no longer pay proportion of

it’s earnings as dividend regularly. Then from 2002 – 2006 both MPS and DPR began to

fluctuate in nearly opposite direction.

Table 4.3.27: Vitaform Nigeria Plc.

X Y

Year DPR MPS

1995 0.37 7.42

1996 0.56 4.71

1997 0.57 4.45

1998 0.69 2.95

1999 0.65 3.14

2000 0.72 3.50

2001 0.68 4.28

2002 0.68 4.75

2003 0.64 3.80

2004 0.73 3.59

2005 0.88 4.04

2006 0.35 4.98




In table 4.3.27, DPR increased from N0.37 to N0.57 and MPS then decreased from N7.42 to

N4.45 in 1995 – 1997 simultaneously, then from 1998 to 2006, there was a slight influence of

DPR on MPS.

Table 4.3.28: Mobil Nigeria Plc.

X Y Year DPR MPS 1995 0.95 21.82 1996 0.82 41.54 1997 0.65 63.23 1998 0.01 56.63 1999 0.01 58.21 2000 5.62 61.50 2001 0.94 64.35 2002 0.98 62.83 2003 1.00 108.00 2004 0.89 188.00 2005 0.90 160.00

2006 0 162.06 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.28, the increase or decrease in DPR is not dependent on the increase or decrease in

MPS within the period under study.

Table 4.3.29: Texaco Nigeria Plc.

X Y Year DPR MPS 1995 0 10.59 1996 0.50 27.08 1997 0 36.27 1998 1.00 32.45 1999 0.64 24.57 2000 0.81 45.01 2001 0.80 65.50 2002 0.75 54.01 2003 0 114.62

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2004 0.92 178.97 2005 0.99 120.99 2006 0.84 125.11 Data source: NSE Factbook and Daily Official List various years.



In table 4.3.29, there were fluctuations and irregularities in DPR, yet it has no direct influence on

MPS from 1995 – 2006.

Table 4.3.30: Total Nigeria Plc.

X Y

Year DPR MPS

1995 0.46 23.10

1996 0.46 49.46

1997 0.74 52.35

1998 0.65 43.65

1999 0.53 37.08

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2000 0.73 56.12

2001 0.71 68.75

2002 15.22 65.53

2003 1.14 134.00

2004 1.10 196.25

2005 0.89 173.46

2006 0.35 178.08




In table 4.3.30, the variation in DPR was not dependent on the variation in MPS within the

period under study.

4.3 DATA ANALYSIS

TEST OF HYPOTHESES

Hypothesis One

Ho – Dividend payment has no significant influence on the movement of share prices of the

thirty (30) quoted firms in the Nigerian Stock Exchange.

H1—Dividend payment has a significant direct influence on the movement of share prices of the


RESULTS

The result obtained when all the thirty(30) sample sizes were combined to test hypothesis one,

suggests that dividend payment has no direct significant influences on the movement of share

prices of the thirty(30) quoted firms in the Nigerian Stock Exchange (R2= 000; Standard error=

34.04541;F-Cal=.027; Standardized coefficient =.009; α significance = .870 at P>0.05).

Therefore, the null hypothesis was accepted. (See appendix Two)

Hypothesis Two

H0 – The size of dividend payout ratio has no significant direct influence on the movement of

share prices of the thirty quoted firms in the Nigerian Stock Exchange.

H1—The size of the dividend payout ratio has a direct significant influence on the movement of

share prices of the thirty (30) quoted firms in the Nigerian Stock Exchange.

RESULTS

When all the thirty (30) sample sizes were combined to test hypothesis two, the result obtained

suggests that; the size of dividend payout ratio has no significant influence on the movement of

share prices of the thirty (30) quoted firms in the Nigerian Stock Exchange (R2 = .000; Adjusted

R2 =- .003; Standard Error = 265.95647; F-Cal= .027; α significance=.869; at P > 0.05)

Therefore the null hypothesis was rejected. (See appendix Two)

Hypothesis Three

H0 -- There is no significant variation in the trend of share prices among various quoted firms in

the Nigerian Stock Exchange.

H1 – There is a significant variation in the trend of share prices among various quoted firms in

the Nigerian Stock Exchange.

RESULTS

The test from the combination of all the thirty (30) sample sizes in hypothesis three, suggests that

significant variation exist in the trend of share prices among the various quoted firms in the

Nigerian Stock Exchange. (See appendix Two)

TABLE 4.2.3 ANOVA RESULT

Sum of squares DF Mean square F Sig.

Between Groups 264153.64 29 9108.746 2.963 .000

Within Groups 1014325.9 330 3073.715

Total 1278479.5 359

NB: α significant is .000 at P > 0.01. Therefore the null hypothesis was rejected.

4.4 DATA INTERPRETATION/ IMPLICATION OF RESULTS

4.4.1 Hypothesis One

The result shows that dividend payment has no direct influence on the movement of share prices

on the thirty quoted firms in the Nigerian Stock Exchange ( R2 = 0.000; Adjusted R2 -. 003;

Standard error = 34.04541; F – cal = .027 standardized coefficient=.009; � significance =.870; at

P > .05).Therefore, null hypothesis was rejected. (See Appendix Two)

It implies that dividend does not in any way influence the movement of stock prices of the thirty

(30) quoted firms under study. The standardized coefficient of the model (=.009) indicates that

dividend payment is not a strong factor for forecasting or predicting the movement of share

prices of the thirty (30) selected quoted firms in the Nigerian Stock Exchange. This therefore

falls in line with Modigliani and Miller’s hypothesis of the irrelevance of dividend payment, as

against the theories of Walters, and others on the supremacy of dividend payment in Stock

valuation.

4.4.2 Hypothesis Two

The results show that dividend payout ratio has no direct influence on the movement of Stock

prices of the thirty (30) selected quoted firms in the Nigerian Stock Exchange (NSE). (R2 = .000;

Adjusted R2= -.003; standard error=265.95647; f-cal=.027; standardized coefficient= -.009; �

significance = .869 at P > .05) Therefore, null hypothesis was rejected. (See Appendix Two)

This on its own implies that dividend payout does not influence the movement of stock prices of

the thirty (30) quoted firms under study. The standardized coefficient of the model indicates that

dividend payout ratio is not a significant factor for predicting movement of share prices of the

thirty (30) quoted firms. However, the finding comfortably gained the support of the leader of

the dividend irrelevance group, “Modigliani and Miller”. They claimed that in a competitive

capital market, shareholders could always reinvest their surplus income or sell part of their

capital in order to consume. Whether the income was received in the form of dividend or capital

gains was mere packaging. This argument is then out of favour with Kirshman (1963); and

Graham and Dodd (1951); and Gordon (1962) bird–in- the-hand theory of dividend payout

relevance, according to Graham uncertainty increases with futurity i.e. the more one looks into

the future the more uncertain dividend becomes.

4.4.3 Hypothesis Three

The result of the third hypothesis suggests that there is variation in the trend of share prices

among the various quoted firms in the Nigerian Stock Exchange. This is an indication that

significant variation exists among various quoted firms in the Nigeria at 0.01 significant levels.

The F-value or F-Cal of 2.963 shows the validity of existing variation in the trend of share

prices. These variations could be as a result of some determinants such as a new market

capitalization, irregularities in dividend payment by some quoted firms among others. Generally,

the implication of the result is that the trend of share prices among the thirty (30) selected quoted

firms in the Nigerian Stock Exchange varies significantly.

4.5 SOME FURTHER EMPIRICAL TESTS AND RESULTS

When hypothesis one, two, and three were subjected to detailed empirical test using individual

firms from the thirty (30) sample size in the selected twelve(12) sub- sectors in the NSE, the

following results were revealed:-

Hypothesis One

H0 - Dividend payment has no significant direct influence on the movement of share prices of the


H1- Dividend payment has a significant direct influence on the movement of share prices of the


RESULTS

The result of the test and analysis of the first hypothesis on each of the thirty (30) quoted firms

in the Nigeria Stock Exchange are as follow:-

(1) DUNLOP NIGERIA PLC

The results of the hypothesis suggest that dividend payment has a direct significant influence on

the movement of share prices of Dunlop Nigeria PLC (R2 = .882; Adjusted R2 = .805; Standard

Error = 1.88689; F-Cal = 46.275; α significant = .000; at P < 0.01) Therefore, null hypothesis

was rejected.

This implies that dividend payment accounts for 82.2 percent movement in share prices of

Dunlop Nigeria PLC in the NSE. Indicating that dividend payment strongly influences the

movement of share prices of Dunlop Nigeria PLC in the NSE, hence, a strong determinant. As

dividend payment increases share prices also increases and as dividend payment decreases, share

price also decreases. This implies that market forces of demand and supply is a strong

determinant or tend to favour Dunlop Nigeria PLC, since, the higher the market price, the greater

the dividend payment and the lower the market price the smaller the naira amount of dividend

that will be paid. Therefore, the law of supply strongly influences Dunlop Nigeria PLC in the

NSE. The standard coefficient of .691 indicate that dividend payment is a strong factor for

predicting the movement of share prices of Dunlop Nigeria PLC.

(2) R.T. BRISCOE NIGERIA PLC

The result of the hypothesis suggests that dividend payment has no direct significant influence on

the movement of share prices of R.T.Briscoe Nigeria PLC, (R2=.044; Adjusted R2=-.052;

Standard error=1.82817; Standardised coefficient= -.210; F-cal=.460; α significance .513; at

p>0.05) Therefore, null hypothesis was accepted.

The implication is that dividend payment has no significant influence on share prices of

R.T.Briscoe Nigeria PLC in the NSE. More so, the standardized coefficient of -.210 indicates

that dividend payment is not a key factor for forecasting share prices for R.T. Briscoe Nigeria

PLC.

(3) FIRST BANK OF NIGERIA PLC

For First Bank of Nigeria PLC the result obtained from the hypothesis suggests that dividend

payment has a direct influence on the movement of share prices (R2=.450; Adjusted R2=.395;

Standard error=7.01990; F-cal=8.175; Standardized coefficient=.671; ∝ significance=.017; at

P<0.05). Therefore, null hypothesis was rejected.

This is an implication that dividend payment accounts for 45 percent movement in the share

prices of First Bank of Nigeria PLC. This simply indicates that dividend payment has a weak

influence on the movement of share price of First Bank of Nigeria PLC in the NSE. And the

standard coefficient of .671 is an indication that dividend payment is a strong key for predicting

stock prices of First Bank of Nigeria PLC.

(4) UNITED BANK FOR AFRICA (UBA) PLC

On the part of United Bank for Africa PLC the result of the hypothesis suggests that dividend

payment has a significant influence on the movement of share price at 0.05 significant level

(R2=.380; Adjusted R2 =.318; Standard error = 2.51165; F-cal=6.122; Standardized coefficient =

.616; ∝ significance =.033; at P<0.05) Therefore, null hypothesis was rejected.

This implies that dividend payment accounts for 38 percent influence on the movement of share

prices of United Bank for Africa PLC in the NSE, and, the standardized coefficient of .616 still

indicates that dividend payment is a strong determinant for forecasting the movement of share

prices of UBA PLC in the NSE.

(5) UNION BANK OF NIGERIA (UBN) PLC

On the part of Union Bank of Nigeria PLC the result of the hypothesis suggests that dividend

payment has a direct significant influence on the movement of share prices at 0.05 significant

level. (R2 =.386; Adjusted R2 =.325; Standard error = 7.84300; F-cal = 6.296; Standardized

coefficient = .622; ∝ significance = .031; at P< 0.05). Therefore, null hypothesis was accepted.

This implies that dividend payment has a weak influence of 38.6 percent on the share price of

Union Bank of Nigeria PLC. Dividend payment is also a strong factor for predicting the share

price of Union Bank of Nigeria PLC, looking at the standardized coefficient figure of .662. This

also falls in line with Gordon (1962) findings on the relevance of dividend payment.

(6) NIGERIA BREWERIES PLC

For Nigerian Breweries PLC, the result of the hypothesis obtained suggests that dividend

payment has no direct significant influence on the movement of share prices. (R2 =.226; Adjusted

R2 =.149; Standard error = 12.53832; F-cal = 2.924; Standardized coefficient =-.476; ∝

significance = .118 at P>0.05) Therefore null hypothesis was accepted.

The implication is that dividend payment has no significant influence on the movement of share

prices for Nigeria Breweries PLC. It proves that dividend payment does not influence the share

prices of Nigerian Breweries in NSE. Modigliani and Millers (1961) findings is in line with this

hypothesis.

(7) GUINNESS NIGERIA PLC

The result of the hypothesis suggests that dividend payment has a direct significant influence on

the movement of share prices of Guinness Nigeria PLC at 0.01 significant level. (R2 = .551;

Adjusted R2 =.507; Standard error = 30.82708; F-cal=12.291, Standardized coefficient =.743; ∝

significance= .006, at P< 0.01). Therefore, the null hypothesis was rejected.

The implication is that dividend payment accounts for 51.5 percent movement in the share prices

of Guinness Nigeria PLC in the NSE. This is an indication that dividend payment strongly

influences the movement of share prices for Dunlop Nigeria PLC in the NSE. The standardized

coefficient of .743 indicates that dividend payment is a strong determinant for predicting the

firm’s share prices in the NSE. This means that as dividend payment increases, share prices also

increases, vice-versa.

(8) ASHAKA CEMENT PLC

The result obtained suggests that dividend payment has no direct significant influence on the

movement of share prices of Ashaka Cement PLC. (R2 = .000; Adjusted R2-.100; Standard

error=8.20249; F-cal=.000; Standardized coefficient =.006; ∝ significance=.986; at P>0.05).

Therefore, null hypothesis was accepted. This indicates that dividend payment does not in any

way influences share prices and also cannot be used as a predictor variable for share prices of

Ashaka Cement PLC. Hence, the finding is in line with Modigliani and Miller’s (1961)

submissions.

(9) WEST AFRICAN PORTLAND CEMENT (WAPCO) PLC

In the case of West African Portland Cement PLC, the results suggest that dividend payment has

no direct significant influence on the movement of share prices. (R2 = .107; Adjusted R2 = .018;

Standard error=12.87787; F-cal =1.201; Standardized coefficient=.327; ∝ significance=.299; at

P>0.05). Therefore null hypothesis was accepted. The simple indicates that dividend payment

has no significant influence on the share prices of WAPCO Nigerian PLC in the NSE. More so,

the standard coefficient of .327 is an indication that dividend payment is not a key factor for

predicting share prices of WAPCO Nigeria PLC. Friend and Puckett (1964) made a similar

submission.

(10) BERGER PAINTS NIGERIA PLC.

For Berger paints Nigeria PLC, the results obtained suggest the dividend payment has no direct

significant influence on the movement of share prices. (R2 = .023; Adjusted R2 = -.075; Standard

error = 1.29726; F-cal = .231; Standardized coefficient. 150; ∝ significance = .641 at P>0.05).

Therefore, null hypothesis was accepted. This implies that dividend payment does not influence

share prices and cannot also be used to predict the market shares prices of Berger Paint Nigeria

PLC.

(11) CAP PLC.

The result of the hypothesis suggest that dividend payment has no significant influence on the

movement of share prices for CAP PLC (R2 = .034; Adjusted R2 = -.062; Standard error =

2.33404; F-cal = .354; Standardized coefficient = .185; ∝ significance =.565 at P>0.05).

Therefore, null hypothesis was accepted.

This also implies that dividend payment has no influence on share prices. Hence, dividend

payment is not a key factor for predicting the share prices of CAP PLC in the NSE looking at the

standardizes coefficient of .185

(12) TRANS-NATIONWIDE EXPRESS PLC.

In the case of Trans-nationwide Express PLC, the result of the hypothesis suggests that dividend

payment has no significant influence on the movement of share prices. (R2 = .078; Adjusted R2 =

-.014; Standard error = .21648; F-cal = .846; Standardized coefficient = -.279; ∝

significance.379 at P> 0.05). Therefore, null hypothesis was accepted. This is an indication that

dividend payment is not a predictor variable. There might be other key factors not within the

scope of our study. This is in line with Harkavy (1953) submission.

(13) JOHN HOLT NIGERIA PLC.

The result of the hypothesis suggests that dividend payment has a significant influence on the

movement of share prices for John Holt Nigeria PLC (R2 = .868; Adjusted R2 = .865; Standard

error = 1.54039; F-cal = 65.777; Standardized coefficient = .932; α significance = 0.000; at

P<0.01). Therefore, the null hypothesis was rejected.

The implication of the result is that dividend payment accounts for 86.8 percent in the movement

of share prices of John Holt Nigeria PLC in the NSE. This is an indication that dividend payment

strongly influences the movement of share prices for John Holt Nigeria PLC in the NSE. The

standardized coefficient of .932 i.e. 93.2 percent indicates that dividend payment is a strong

determinant for predicting share prices of John Holt Nigeria PLC. This means that as dividend

payment increases, share prices also increases, vice-versa. This finding is in line with Gordon’s

submission of dividend relevance in 1959.

(14) UNILEVER NIGERIA PLC.

On the part of Unilever Nigeria PLC the result obtained suggests that dividend payment has no

direct significant influence on the movement of share prices (R2=.199; Adjusted R2=.119;

Standard error=5.28721; F-cal=2.480; Standardized coefficient=.446; α significance=.146; at

P>0.05). Therefore, null hypothesis was accepted.

The implication is that dividend payment has no influence on the share prices of Unilever

Nigeria PLC in the NSE. More so, the standardized coefficient of 44.6 percent simply portrays

that dividend payment cannot be used to predict the share prices of Unilever Nigeria PLC in the

NSE. That means that there could be other factors that could be used to predict share prices

movement for Unilever Nigeria PLC. This is in conformity with Modigliani and Miller’s theory

of irrelevance of dividend.

(15) P.Z. INDUSTRIES PLC.

For P.Z. Industries Nigeria PLC, the result obtained suggests that dividend payment has no

significant influence on the movement of share prices. (R2 =.046; Adjusted R2= -.049; Standard

error=7.16921; F-cal=.485; Standardized coefficient=-.215; ∝ significance= .502 at P>0.05).

Therefore, null hypothesis was accepted.

This implies that dividend payment has no significant influence on the movement of share prices

for P.Z. Industries Nigeria PLC on the NSE. The standardized coefficient of -.215 indicates that

dividend payment is not a significant factor for predicting share prices for P.Z. Industries Nigeria

PLC. This finding succumbs to Modigliani’s and Miller’s (1961) submission of dividend

irrelevance.

(16) UAC OF NIGERIA PLC.

The result of the hypothesis suggests that dividend payment has no direct significant influences

on the movement of share prices for UAC Nigeria PLC in the NSE.(R2 = .020; Adjusted R2 = -

.078; Standard error=5.30497; F-cal = .200; Standardized coefficient=.140; α significance=.664;

at P>0.05). Therefore, null hypothesis was accepted.


prices for UAC of Nigeria PLC in the NSE. The standardized coefficient of .140 indicates that

dividend payment cannot be used as determinant for forecasting share prices of UAC Nigeria

PLC. This supports the work of Harkavy. (1953)

(17) AG LEVENTIS NIGERIA PLC.

For AG Leventis Nigeria PLC, the result of the hypothesis suggests that dividend payment has a

direct significant influence on the movement of share prices at 0.1 level in the NSE. (R2 = .497;

Adjusted R2 = .447; Standard error = .44050; F-cal= 9.888; Standardized coefficient = .705; α

significance = .010; at P<0.01). Therefore, null hypothesis was rejected.

This implies that dividend payment influences the movement of share prices of A.G Leventis

Nigeria PLC by 49.7 percent. Then the standardized coefficient of 70.5 percent indicates that

dividend payment is a very strong determinant for forecasting share prices of AG Leventis

Nigeria PLC in the NSE. It portrays that as dividend payment increases, share prices also

increases, vice versa. The finding is in support of Walters (1963) submission on the relevance of

dividend.

(18) CAPPA AND ‘D’ ALBERTO NIGERIA PLC.


the movement of share prices for Cappa and ‘D’ Alberto Nigeria PLC in the NSE. (R2 = .081;

Adjusted R2 = -.011; Standard error = 2.97892; F-cal = .878; Standardized coefficient = -.284; α

significance = 371; at P>0.05). Therefore null hypothesis was accepted.

The implication is that dividend payment do not influence the movement of share prices of

Cappa and ‘D’ Alberto Nigeria Plc in the NSE at all. The standardized coefficient result of -.284

suggests that dividend payment is not a predictor variable for Cappa and ‘D’ Alberto Nigeria

PLC.

(19) JULIUS BERGER NIGERIA PLC.

For Julius Berger Nigeria PLC, the result of the hypothesis suggests that dividend payment has

no significant influence on the movement of share prices in the NSE. (R2 = .071; Adjusted R2 = -

.022; Standard error = 10.94334; Standardized coefficient = .266; α significance = .403; at

P>0.05). Therefore, null hypothesis was accepted.

Simply, the implication is that dividend payment do not influence share prices of Julius Berger

Nigeria PLC in the NSE. More so, it also indicates that dividend payment cannot also be used in

forecasting the firms share prices as well. The test has completely complied to Modigliani and

Miller’s (1961) findings of dividend irrelevance.

(20) 7-UP BOTTLING COMPANY PLC.

In the case of 7-up Bottling Company PLC, the result of the hypothesis suggests that dividend

payment has no direct significant influence on the movement of share prices in the NSE.

(R2=.164; Adjusted R2 = .081; Standard error=10.54438; F-cal=1.965; Standardized coefficient =

-.405; ∝ significance = .191; at P>0.05). Therefore, null hypothesis was accepted.

The implication is that dividend payment has no influence on share prices of 7-up Bottling

Company PLC in the NSE, and dividend payment is not a significant factor for determining

share prices of 7-up Bottling Company Nigeria PLC looking at the standardized coefficients of -

.405. This finding is in line with Okafor’s (1983) submission.

(21) CADBURY NIGERIA PLC.


the movement of share prices for Cadbury Nigeria PLC in the NSE. (R2 = .006; Adjusted R2 = -

.093; Standard error 19.38215; F-cal = .061; Standardized coefficient = .078; α significance =

.809; at P > 0.05). Therefore, mull hypothesis was accepted.

The 00.6 percent (R2) result implies that dividend payment do not influence share prices of

Cadbury Nigeria PLC at all. Also the standardized coefficient of 07.8 percent equally proves that

dividend payment is not a significant variable for predicting stock prices of Cadbury Nigeria

PLC in the NSE. The findings is in strong support of Modigliani and Miller’s submission on the

irrelevance of dividend.

(22) FLOUR MILLS NIGERIA PLC.


the movement of share prices for Flour Mills Nigeria PLC in the NSE. (R2 = .203; Adjusted R2 =

.123; Standard error = 5.00670; F-cal = 2.540; Standardized coefficient = -.450; ∝ significance.

142; P>0.05). Therefore, null hypothesis was accepted.

This implies that dividend payment do not influence share prices of Flour Mills Nigeria PLC in

the NSE. Then, from the standardized coefficient of -.450 dividend payment is not a strong

determinant for predicting stock prices of Flour Mills Nigeria PLC. It complies to Friend and

Puckett’s (1964) submission on dividend irrelevance.

(23) NESTLE FOOD NIGERIA PLC.

In the case of Nestle Food Nigeria PLC, the result obtained suggests that dividend payment has

direct significant influence at 0.01 significant level on the movement of the firm’s share prices.

(R2=.768; Adjusted R2=.745; Standard error = 29.48364; F-cal = 33.190; Standardized

coefficient = .877; α significance = .000; at P<0.05). Therefore, null hypothesis was rejected.

This implies that dividend payment accounts for 76.8 percent movement in share prices for

Nestle Food Nigeria PLC in the NSE. This is an indication that dividend payment strongly

influences the movement of share prices of Nestle Food Nigeria PLC in the NSE. The

standardized coefficient of 87.7 percent also indicates that dividend payment is a strong

determinant, hence, can be used in price prediction for Nestle Food Nigeria PLC in the NSE.

This shows that as dividend payment increases, share prices also increases, vice-versa. The test

of the result did not conform in anymore with the dividend irrelevance school of thought.

(24) NIGERIA BOTTLING COMPANY PLC.

For Nigeria Bottling company PLC, the results obtained from the hypothesis suggests that

dividend payment has no direct significant influence on the movement of share prices (R2 = .025;

Adjusted R2 = -.072; Standard error = 19.28677; F-cal = .257; Standardized coefficient= -.158; ∝

significance = .623; at P>0.05). Therefore, null hypothesis was accepted.

The implication is that the R2 of .025 percent of dividend payment on share prices portrays that

dividend payment exerts no influence on the firm’s share prices. Then the standardized

coefficient result of -.158 is an indication that dividend payment is not a determinant for

predicting share prices movement of Nigeria Bottling Company PLC in the NSE. This shows

compliance with the dividend irrelevance school of thought.

(25) MAY AND BAKER NIGERIA PLC.


the movement of share prices for May and Baker Nigeria PLC in the NSE. (R2 = .004; Adjusted

R2 = -.096; Standard error = 1.40881; F-cal = .038; Standardized coefficient = -.061; α

significance = .850; at P>0.05). Therefore, null hypothesis was accepted.

This implies that dividend payment has no influence at the same time not a determinant for

predicting the share prices of May and Baker Nigeria PLC in the NSE.

(26) NEIMETH INTERNATIONAL PHARMACEUTICAL PLC.

The result of the hypothesis obtained suggests that dividend payment has no direct significant

influence on the movement of share prices for Neimeth International Pharmaceutical PLC in the

NSE. (R2 = .073; Adjusted R2 = -.020; Standard error=1.68596; F-cal=.785; Standardized

coefficient=.270; α significance = .396; at P > 0.05). Therefore, null hypothesis was accepted.

Summarily, dividend payment is not also a significant factor for forecasting the share prices of

Neimeth International Pharmaceutical PLC. Therefore, it is in line with the submissions of the

irrelevance school of thought on dividend payment.

(27) VITAFOAM NIGERIA PLC.

In the case of Vitafoam Nigeria PLC, the results obtained suggest that dividend payment has no

direct significant influence for Vitafoam Nigeria PLC in the NSE. (R2 = .008; Adjusted R2 = -

.092; Standard error = 1.20688; F-cal=.077; Standardized coefficient=-.088; α significance=.786;

at P>0.05). Therefore null hypothesis was accepted.

This implies that dividend payment is not a determinant for forecasting share prices of Vitafoam

Nigeria PLC in the NSE. The result therefore complies with Modigliani and Miller’s hypothesis

of irrelevance of dividend.

(28) MOBIL NIGERIA PLC.

In the case of Mobil Nigeria PLC, the result of the hypothesis obtained suggests that dividend

payment has no direct significant influence on the movement of its share prices (R2 = .278;

Adjusted R2 = .206; Standard error = 48.05186; F-cal = 3.852; Standardized coefficient = -.527;

α significance = .078; at P > 0.05). Therefore, null hypothesis was accepted.

This implies that dividend payment has no direct influence on the movement of share prices of

Mobil Nigeria PLC in the NSE. More so, the Beta result of - .527 confirms that dividend

payment cannot be used for predicting share prices of Mobil Nigeria PLC in the NSE. This

therefore is in line with Friends and Puckett’s (1964) argument for the irrelevance of dividend.

(29) TEXACO NIGERIA PLC.

For Texaco Nigeria PLC, the result obtained suggests that dividend payment has no direct

significant influence on the movement of share prices in the NSE. (R2 =.079; Adjusted R2 = -

.013; Standard error = 52.90799; F-cal = .855; Standardized coefficient = .281; ∝ significance

=.377; at P > 0.05). Therefore, null hypothesis was accepted.

The implication of the result is that dividend payment has no significant influence on the share

prices of Texaco Nigeria PLC, this is also an indication that dividend payment is not a significant

determinant for predicting share prices of the firm in the NSE.

(30) TOTAL NIGERIA PLC.

For Total Nigeria PLC, the results of the hypothesis obtained suggest that dividend payment has

a significant influence on the movement of the firm’s share prices. (R2 = .411; Adjusted R2 =

.351; Standard error = 50.12877; F-cal = 6.965; Standardized coefficient = .641; α significance =

.025; at P < 0.05). Therefore, null hypothesis was rejected.

The implication of the result is that dividend payment influences the share prices of Total

Nigeria PLC in the NSE by 41.1 percent, which is an indication that dividend payment though

has a weak influence on the firm’s share prices, yet is a strong determinant for predicting share

prices of Total Nigeria PLC. This portrays that as dividend payment increases share prices also

increases, vice-versa.

HYPOTHESIS TWO

Ho: Size of dividend payout ratio has no significant influence on the movement of share prices

of the thirty (30) quoted firms in the Nigeria Stock Exchange.

H1: Size of dividend payout ratio has a significant influence on the movement of share prices of

the thirty (30) quoted firms in the Nigerian Stock Exchange.

RESULTS

The results of the test and analysis of the second hypothesis on each of the thirty (30) quoted

firms in the Nigeria Stock Exchange revealed thus:

(1) DUNLOP NIGERIA PLC.

The result of the hypothesis suggests that the size of the dividend payout ratio has a significant

influence on the movement of share prices of Dunlop Nigeria PLC at 0.05 significant level (R2 =

.477; Adjusted R2 = .425; Standard error = 3.29054; F-cal=9.134; Standardized

coefficients=.691; α significance= 0.013; at P < 0.05). Therefore null hypothesis was rejected.

This implies that dividend payout ratio accounts for 47.7 influence on the movement of share

prices of Dunlop Nigeria PLC in the Nigeria Stock Exchange (NSE). Therefore, it is an

indication that dividend payout ratio influences the movement of share prices of Dunlop Nigeria

PLC in the NSE.

The standard coefficient of .691 is an indication that dividend payout ratio is a strong

determinant for forecasting the movement of share prices of Dunlop Nigeria PLC.This falls in

line with Williams (1938) who is one of the earliest protagonist of the view that dividend were

all that matters.

(2) R.T. BRISCOE NIGERIA PLC.

The result of the hypothesis suggests that the size of the dividend payout ratio has no significant

influence on the movement of share prices for R.T Briscoe Nigeria PLC. (R2 = 0.010, Adjusted

R2 = -.089, Standard error = 1511.3364, F – cal=.103, Standardized coefficient - .101, α

significance = .755, at p > 0.05). Therefore null hypothesis was accepted.

This implies that dividend payout ratio does not influence the movement of share prices of R.T

Briscoe Nigeria PLC. Also the standard co-coefficient of -.101 indicates that dividend payment

is not a predictor variable. This is in agreement with Modigliani’s and Miller’s argument of

dividend irrelevance.

(3) FIRST BANK OF NIGERIA PLC (FBN)

The result of the hypothesis suggest that the size of dividend payout ratio has no significant

influence on the movement of share prices of First Bank of Nigeria PLC in the NSE. (R2=.170;

Adjusted R2=.087, Standard error=8.62270, F–cal=2.046, Standardized coefficient=.412 α

significance=.183; at P>0.05). Therefore, the null hypothesis was accepted.

The implication of the result is that the size of dividend payout ratio has no influences on the

movement of share prices of First Bank of Nigeria PLC. In addition share prices cannot be

predicted by the size of dividend payout ratio for First Bank of Nigeria PLC.This findings is in-

line with Okafor’s (1983) submission on dividend irrelevance.

(4) UNITED BANK FOR AFRICA (UBA) PLC

Result obtained for UBA suggest that the size of dividend payout ratio has no significant

influence on the movement of share prices of United Bank for Africa (UBA) PLC. [R2 = .027,

Adjusted R2 = -0.071, Standard error = 3.14717, F – cal = .273, Standard coefficient = - .163, α

significance = .613 at P > 0.05]. Therefore, null hypothesis was accepted.

Given the above result, size of dividend payout ratio has no influence on the movement of share

prices of United Bank for Africa (UBA) PLC. Also, share prices cannot be predicted as a result

of the size of dividend payout ratio. This finding supports the work of Baye and Jansen (2006).

(5) UNION BANK OF NIGERIA PLC (UBN).

For Union Bank of Nigeria (UBN) PLC, the result of the test of the hypothesis suggests that the

size of dividend payout ratio has a significant influence on the movement of share prices.

(R2=.470; Adjusted R2=.417; Standard error =7.29184; F-cal =8.858; Standardized coefficient

=.685; α significance =.014; at P< 0.05) Therefore, null hypothesis was rejected.

This means that dividend payout ratio accounts for 47 percent influence on the movement of

share prices for Union Bank of Nigeria PLC in the NSE, showing a weak influence. The

standardized coefficient of .685 is an indication that dividend payout ratio is a strong determinant

for forecasting the firm’s share prices. This is in-line with Walters’ Theory (1956).

(6) NIGERIA BREWERIES PLC.

On the part of Nigeria Breweries PLC, the result of the hypothesis suggests that the size of

dividend payout ratio has no significant influence on the movement of share prices. (R2=.000;

Adjusted R2 =-.100; Standard error= 14.25371; F-cal =.000; Standardized coefficient =.002; α

significance=.994; at P>0.05) Therefore, null hypothesis was accepted. This indicates that the

size of dividend payout ratio does not affect the movement of share prices of Nigeria Breweries

PLC in the NSE.

(7) GUINESS NIGERIA PLC.

The result of the hypothesis suggests that the size of dividend payout ratio has no significant

influence on the movement of share prices of Guiness Nigeria PLC. (R2=.063; Adjusted R2=-

.031; Standard error =44.56185; F-cal =.668; Standardized coefficient =.250; α significance

=.433; at P>0.05). Therefore, null hypothesis was accepted.

This implies that the size of dividend payout ratio has no significant influence on the movement

of share prices of Guiness Nigeria PLC in the NSE. The standardized coefficient of .250 is an

indication that the size of dividend payout ratio is not a significant variable for predicting the

share prices of Guiness Nigeria PLC. This finding has fallen in line with Modigliani and Miller’s

hypothesis of dividend irrelevance.

(8) ASHAKA CEMENT PLC.

For Ashaka Cement PLC, the result obtained suggest that the size of dividend payout ratio has no

significant influence on the movement of it’s share prices (R2 = 17.2; Adjusted R2 = .089;

Standard error = 7.46509; F – cal = 2.074; Standardized coefficient = .4.4; ∝ significant = .180;

at P > 0.05). Therefore, null hypothesis was accepted.

The implication is that the size of dividend payout ratio cannot be used for forecasting the share

price of Ashaka Cement PLC looking at the standardized coefficient of .4.4.

(9) WEST AFRICAN PORTLAND CEMENT (WAPCO) PLC


influence on the movement of share prices of West African Portland Cement PLC. (R2=.032;

Adjusted R2=-.065; Standard error= 12.26785; F–cal =.333; Standardized coefficient = .180; ∝

significance = .577; at P> 0.05). Therefore, null hypothesis was accepted.

This implies that the size of dividend payout ratio does not influence the share prices of the firm,

and from the result of the standardized coefficient of .180 divident payment cannot as well be

used for predicting the share prices of West African Portland Cement PLC in the NSE.

(10) BERGER PAINTS NIGERIA PLC

On the part of Berger Paints Nigeria PLC, the result of the hypothesis obtained suggests that the

size of dividend payout ratio has no significant influence on the movement of share prices. (R2 =

.023; Adjusted R2 = - .075; Standard error = 14.86793; F = cal = .231; Standardized coefficient =

.150; ∝ significance= .641; at P>0.05). Therefore, null hypothesis was accepted. This indicates

that dividend payout ratio is not a significant factor for forecasting share prices of Berger Paints

Nigeria PLC.

(11) CAP PLC

For CAP PLC, the result of the hypothesis obtained suggests that the size of dividend payout

ratio has a significant influence on the movement of the firm’s share prices. (R2 =.359; Adjusted

R2 = .295; Standard error = 1.90251; F– cal = 5.595; Standardized coefficient = .599; ∝

significance = 0.040; at P < 0.05). Therefore, null hypothesis was rejected.

This implies that dividend payout ratio accounts for 35.9 percent movement in share prices of

CAP PLC in the NSE. This is an indication that dividend payout ratio weakly influences the

movement of share prices for CAP PLC in the NSE.

(12) TRANS -NATIONWIDE EXPRESS PLC


influence on the movement of share prices of Trans-nationwide Express PLC. (R2 = .191;

Adjusted R2 = .110; Standard error = .20278; F–cal = 2.361; Standardized coefficients = - .437;

∝ significance = .155; at P > 0.5). Therefore, null hypothesis was accepted.

The implication is that dividend payout ratio has no influence on the movement of share prices

for Trans-nationwide Express PLC. Moreso, the standardized coefficient of 43.7 percent simply

portrays that dividend payout ratio cannot be use to predict the movement of share prices for

Trans- nationwide Express PLC in the NSE, which is in line with dividend irrelevance school of

thought.

(13) JOHN HOLT NIGERIA PLC

Result of the hypothesis suggests that the size of dividend payout ratio has no significant

influence on the movement of share prices for John Holt Nigeria PLC (R2 = .191; Adjusted R2 =

.110; standard error = 3.81172; F – cal= 2.358; standardized coefficients = .437; ∝ significance =

.156; at P >0.05). Therefore, null hypothesis was accepted. This is an indication that dividend

payout ratio cannot be used to predict the share prices of John Holt Nigeria PLC.

(14) UNILEVER NIGERIA PLC

On the part of Unilever Nigeria PLC, the result of the hypothesis obtained suggests that the size

of dividend payout ratio has no significant influence on the movement of share prices. (R2 =

.209; Adjusted R2 = .130; Standard error = 5.25485; F–cal=2.639; Standardized coefficients= -

.457; ∝ significance = .135; at P > 0.05). Therefore, null hypothesis was accepted.


prices of Unilever Nigeria PLC in the NSE. More so, the standardized coefficient of - .457

indicates that dividend payout ratio is not a key factor for forecasting share prices of Unilever

Nigeria PLC.

(15) PZ INDUSTRIES PLC

For PZ Industries PLC, the result of the hypothesis obtained suggests that the size of dividend

payout ratio has a significant influence on the movement of the firm’s share prices. (R2 = .486;

Adjusted R2 = .435; Standard error = 5.26324; F – cal = 9.454; Standardized coefficients = -

.697; ∝ significance = 0.012; at P < 0.05). Therefore, null hypothesis was rejected.

This implies that dividend payout ratio accounts for 48.6 percent in the movement of share prices

of PZ Industries PLC in the NSE. This simply indicates that dividend payout ratio has a weak

influence on the firms share prices but is a strong variable for predicting the share prices of PZ

Industries PLC looking at the standardized coefficient of 69.7 percent.

(16) UAC OF NIGERIA PLC

The result of the hypothesis suggests that the size of the dividend payout ratio has a significant

influence on the movement of share prices of UAC Nigeria PLC at 0.01 significant level.

(R2=.660; Adjusted R2=.626; Standard error=3.12489; F–cal =19.396; Standardized

coefficients=.812; ∝ significance = .001; at P<0.01). Therefore, null hypothesis was rejected.

This implies that dividend payout ratio has a strong influence of 66.0 percent on the share price

of UAC of Nigeria PLC in the NSE. The standardized coefficient of 81.2 percent is an indication

that dividend payout ratio is a very strong factor for predicting market share prices of UAC of

Nigeria PLC.

(17) AG LEVENTIS NIGERIA PLC

On the part of AG Leventis Nigeria PLC, the result of the hypothesis suggests that the size of

dividend payout ratio has no significant influence on the movement of share prices. (R2 =.294;

Adjusted R2 =.223; Standard error = . 52234; F – cal = 4.162; Standardized coefficient = .542; ∝

significance =. 069; at P > 0.05). Therefore, null hypothesis was accepted. This indicates that

dividend payout ratio is not a significant factor for predicting the share prices of AG Leventis

Nigeria PLC.

(18) CAPPA AND ‘D’ ALBERTO NIGERIA PLC


influence on the movement of share prices of CAPPA and ‘D’ Alberto Nigeria PLC (R2=.068;

Adjusted R2 = -.025; Standard error = 2.99872; F – cal = .728; Standardized coefficient = -.261;

∝ significance=.413; at P > 0.05). Therefore, null hypothesis was accepted.

The implication is that dividend payout ratio has no influence on the movement of share prices

for Cappa and ‘D’ Alberto Nigeria PLC. It proves that dividend payout ratio has no influence on

the firm’s share prices or rather do not influence the firm’s share prices. The standardized

coefficient of .261 indicate that dividend payout ratio cannot be used to predict share prices of

CAPPA and ‘D’ Alberto Nigeria PLC in the NSE. Modigliani’s and Miller’s (1961) findings is

in line with this hypothesis.

(19) JULIUS BERGER NIGERIA PLC

For Julius Berger Nigeria PLC, the result obtained suggests that the size of dividend payout ratio

has no significance influence on the movement of the firm’s share prices. (R2=.012; Adjusted R2

=-.087; Standard error =. 11.25542; F – cal = .121; Standardized coefficient = -.109; �

significance=.735; at P > 0.05). Therefore, null hypothesis was accepted.

This implies that dividend payout ratio has no influence on the movement of share prices for

Julius Berger Nigeria PLC. Furthermore, the correlation coefficient of -.109 suggests that

dividend payout ratio is not a significant factor for predicting the share prices of the firm in NSE.

(20) 7- UP BOTTLING COMPANY PLC

For 7–UP Bottling Company PLC, the result of the hypothesis obtained suggests that the size of

dividend payout ratio has no significant influence on the movement of the firm’s share prices.

(R2 = .027; Adjusted R2 = -.070; Standard error = 11.37123; F–cal = .281; Standardized

coefficient = .165; ∝ significance= .607; at P > 0.05). Therefore, null hypothesis was accepted.

This indicates that dividend payout ratio does not in anyway influence the share prices of 7–up

Bottling Company PLC, and also cannot be used as a predictor variable for the firm’s share

prices. Hence, in line with Modigliani and Miller’s (1961) submission.

(21) CADBURY NIGERIA PLC

The result of the hypothesis obtained suggests that the size of dividend payout ratio has no

significant influence on the movement of share prices of Cadbury Nigeria PLC. (R2=.184;

Adjusted R2=.103; Standard error=.17.64844; F–cal=2.262; Standardized coefficient=.429; ∝

significance= .164; at P > 0.05). Therefore, null hypothesis is accepted.

This implies that dividend payout ratio has no influence on the share prices of Cadbury Nigeria

PLC in the NSE. And the standardized coefficient of -.429 indicates that dividend payout ratio is

not a key factor for forecasting market share price of the firm.

(22) FLOUR MILLS NIGERIA PLC

For Flour Mills Nigeria PLC, the result of the hypothesis obtained suggests that the size of the

dividend payout ratio has no significant influence on the movement of share prices. (R2=.000;

Adjusted R2=-.099; Standard error = .5.60637; F–cal =.005; Standardized coefficient=.021; ∝

significance =.947; at P > 0.05). Therefore, null hypothesis was accepted.

The indication is that dividend payout ratio is not a predictor variable in determining stock prices

of Flour Mills Nigeria PLC in the NSE.

(23) NESTLE FOOD NIGERIA PLC

In the case of Nestle Food Nigeria PLC, the result of the hypothesis obtained suggests that the

size of dividend payout ratio has no significant influence on the movement of share prices. (R2 =

.104; Adjusted R2 = .014; Standard error =58.01023; F–cal =1.157; Standardized

coefficient=.322;∝ significance= .307; at P > 0.05). Therefore, null hypothesis was accepted.

The implication of the result is that dividend payout ratio is not strong determinant for predicting

the movement of stock prices of Nestle Food Nigeria PLC in the NSE.

(24) NIGERIA BOTTLING COMPANY (NBC) PLC

For Nigeria Bottling Company PLC, the result of the hypothesis suggests that the size of

dividend payment ratio has a significant influence on the movement of share prices. (R2 = .372;

Adjusted R2 = .309; Standard error = .15.47948; F–cal = 5.920; Standardized coefficient = 0.610;

∝ significance = .0.035; at P < 0.05). Therefore, null hypothesis was rejected.

This implies that dividend payout ratio accounts for 37.2 percent in the movement of share price.

Which is an indication that dividend payout ratio has a weak influence on the share price of

Nigeria Bottling Company PLC. The standardized coefficient of 0.610 is an indication that

dividend payout ratio is a determinant for forecasting share prices of NBC PLC. This is in line

with Gordon (1962) that the market value of a share is equal to the present value of infinite

stream of dividends to be received.

(25) MAY AND BAKER NIGERIA PLC


influence on the movement of share prices for May and Baker Nigeria PLC. (R2 = .210; Adjusted

R2 = .131; Standard error =1.25385; F–cal = 2.656; Standardized coefficient = .458; ∝

significance=.134; at P > 0.05). Therefore, null hypothesis was accepted. This indicates that

dividend payout ratio is not a significant factor for predicting the share prices of May and Baker

Nigeria PLC.

(26) NEIMETH INTERNATIONAL PHARMACEUTICAL PLC

For Neimeth International Pharmaceutical PLC, the result suggests that the size of dividend

payout ratio has no significant influence on the movement of share prices. (R2 = 0.021; Adjusted

R2 = 0.077; Standard error = 1.81588; F – cal = .210; Standardized coefficient = .144; ∝

significance= .656; at P > 0.05). Therefore, null hypothesis was accepted. Analyzing the

regression results, dividend payout ratio has no influence on the movement of share prices and

cannot be used to predict the movement of share prices of Neimeth International Pharmaceutical

PLC.

(27) VITAFOAM NIGERIA PLC

On the part of Vitafoam Nigeria PLC, the result of the hypothesis suggests that the size of

dividend payout ratio has a significant influence on the movement of share prices. (R2=.480;

Adjusted R2=.428; Standard error = .88985; F–cal = 9.22; Standardized coefficient = .693; �

significance= 0.013; at P < 0.05). Therefore, null hypothesis was rejected.

This implies that dividend payout ratio has an influence of 48.0 percent on the market share price

of Vitafoam Nigeria PLC in the NSE. Also, the standardized coefficient of 69.3% strongly

indicates that dividend payout ratio is a key determinant for forecasting share prices of Vitafoam

Nigeria PLC.

(28) MOBIL NIGERIA PLC


influence on the movement of share prices of Mobil Nigeria PLC. (R2 = 0.022; Adjusted R2 = -

0.076; Standard error = 55.92498; F – cal = .226; Standardized coefficient = -.149; ∝

significance= .645; at P > 0.05). Therefore, null hypothesis was accepted.

This implies that dividend payout ratio is not a significant factor for predicting the share prices of

Mobil Nigeria PLC in the NSE.

(29) TEXACO NIGERIA PLC

In the case of Texaco Nigeria PLC, the result of the hypothesis suggests that the size of dividend

payout ratio has no significant influence on the movement of share prices. (R2 = .114; Adjusted

R2 = 0.025; Standard error = 51.88799; F – cal=1.285; Standardized coefficient = .337; ∝

significance = 0.283; at P > 0.05). Therefore, null hypothesis was accepted.

This implies that the size of dividend payout ratio has no influence on the movement on stock

prices of Texaco Nigeria PLC. The standardized coefficient of 33.7 is an indication that the size

of dividend payout ratio is not a significant factor for predicting the prices of Texaco stock in the

NSE.

(30) TOTAL NIGERIA PLC

The result of the hypothesis suggests that the size of the dividend payout ratio has no significant

influence on the movement of share prices for Total Nigeria PLC. (R2=.060; Adjusted R2 =-.034;

Standard error = .63.29341; F–cal = .642; Standardized coefficient = .246; ∝ significance =.442;

at P > 0.05). Therefore, null hypothesis was accepted.

This implies that dividend payout ratio has no influence on the movement of share prices of

Total Nigeria PLC in the NSE. Moreover, the standardized coefficient of .246 simply means that

dividend payout ratio is not a key determinant for predicting the movement of share prices of

Total Nigeria PLC.

REFERENCES

Bernanke, B. S and K. N. Kuttner (2005), “What Explains the Stock Market’s Reaction to federal

Reserve Policy?” Journal of Finance, 60 (3): 1221.

Fabozzi, F. J., Modigliani F., and Ferri, M. G. (1994), Foundation of Financial Markets and


Frank, M., and R. Jagonnathan (1998), “Why Do Stock Prices Drop Less Than the Value of the

Dividend? Evidence From a Country Without Taxes”, Journal of Financial Economics, 47:

161 – 188.

Friend and M. Puckett (1964), Dividend and Stock Prices” American Economic Review.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

This study expands the line of enquiry into the Nigerian Stock Exchange. In pursuance of this;

daily stock prices from NSE daily official list, and dividend per share (DPS) data from the

NSE FACTBOOKS of various years for the period of twelve (12) years (which is the period

under study) were collected for thirty (30) individual firms comprising of (12) sub-sectors out of

the twenty eight (28) sub-sectors in the Nigerian Stock Exchange.

The chapter therefore, completes our efforts at investigating empirically and analytically the

“Effects of Dividend Payments on Share Prices”, citing evidence from the thirty (30) quoted

firms in the Nigeria Stock Exchange (NSE). Hence, the summary of the research findings as

contained in chapter four (4). Then conclusion and recommendation are also remarked below.

5.2 SUMMARY OF FINDING

In this study however, results were used to test the hypothesis which has been presented in the

previous chapters while the emerging findings will be deduced with specific reference to the

stated objectives in chapter 1.

OBJECTIVE ONE

To ascertain whether dividend payment has any direct influence on the movement of share

prices on the thirty quoted firms in the Nigerian Stock Exchange.

RESULT

The first (model A) was to ascertain whether dividend payment has any direct influence on the

movement of share prices on the thirty (30) quoted firms in the Nigeria Stock Exchange. The

result showed that dividend payment (profit distributed to investors from earnings) has no

significant influence on the movement of share prices on the thirty (30) quoted firms in the NSE

collectively. This implies that dividend payment does not influence significantly the movement

of share prices of the (30) quoted firm in the NSE collectively. For the purpose of simplicity,

clarity, and analysis the following twenty one (21) firms were insignificant: RT Briscoe Nigeria

PLC; Nigeria Breweries PLC; Ashaka Cement PLC; West African Portland Cement (WAPCO)

PLC; Berger Paints Nigeria PLC; CAP PLC; Trans-Nationswide Express PLC; Unilever Nigeria

PLC; P. Z Industries PLC; U. A. C. of Nigeria PLC; Cappa and ‘D’ Alberto Nigeria PLC; Julius

Berger Nigeria PLC; 7-up Bottling Company PLC; Cadbury Nigeria PLC; Flour Mills Nigeria

PLC; Nigeria Bottling Company PLC; May and Baker Nigeria PLC; Neineth International

Pharmaceutical PLC; Vitafoam Nigeria PLC; Mobil Nigeria PLC; Texaco Nigeria PLC. While

the following nine (9) firms were significant: Dunlop Nigeria PLC; First Bank of Nigeria PLC;

United Bank for Africa (UBA) PLC; Union Bank of Nigeria PLC; Guiness Nigeria PLC; John

Holt Nigeria PLC; A. G Leventis Nigeria PLC; Nestle Food Nigeria PLC; and Total Nigeria

PLC. Perhaps, why twenty one (21) firms were insignificant and only nine (9) firms were

significant could be that investors/Management of the firms were more interested in

reinvesting the company’s profits rather than distributing them to shareholders as dividends;

further reasons could be attributed to the firms’ relative strength of capitalization.

This is an indication that dividend payment is not a key variable for predicting stock prices of

some quoted firms in the NSE, there may be other key factors outside the scope of this study.

This finding is in line with Modigliani and Millers (1961) submission on dividend irrelevance.

OBJECTIVE TWO

To Analyse the Effect of the Size of Dividend Payout Ratio on Share Prices.

RESULT

From the results presented in model B which tested whether the effects of the size of dividend

payout ratio (percentage of a company’s profit that is paid out to investors as dividend) has no

significant influence on the movement of share prices of the thirty (30) selected quoted firms in

the Nigerian Stock Exchange (NSE) collectively. When the researcher further subjected the

thirty (30) selected individual firms from the twelve (12) selected sub-sectors in the NSE to

further empirical test, it was discovered that seven (7) out of thirty (30) collective firms were

significant, while, twenty three (23) were insignificant. The breakdowns of the significant firms

are as follows: Dunlop Nigeria PLC; Union Bank of Nigeria PLC (UBN); CAP PLC; P Z

Industries PLC; UAC of Nigeria PLC; Nigeria Bottling Company (NBC) PLC, and Vitafoam

Nigeria PLC. While the breakdown of the insignificant firms are: R. T Briscoe Nigeria PLC;

First Bank of Nigeria PLC (FBN); United Bank of Africa (UBA) PLC; Nigeria Breweries PLC;

Guiness Nigeria PLC; Ashaka Cement PLC; West African Portland Cement (WAPCO) PLC;

Berger Paints Nigeria PLC; Trans-Nationwide Express PLC; John Holt Nigeria PLC; Unilever

Nigeria PLC; AG Leventis Nigeria PLC; CAPPA and ‘D’ Alberto Nigeria PLC; Julius Berger

Nigeria PLC; 7-Up Bottling Company PLC; Cadbury Nigeria PLC; Flour Mills Nigeria PLC;

Nestle Food Nigeria PLC; May and Baker Nigeria PLC; Neimeth International Pharmaceutical

PLC; Mobil Nigeria PLC; Texaco Nigeria PLC, and Total Nigeria PLC. It was observed that

why only seven (7) firms were significant and twenty three (23) firms were insignificant could

be associated to the firms’ length of quotation, relative strength of capitalization, and the level

of performance of the stocks of the firms under study.

The implication of the result is that a percentage of a company’s profit that is been paid out to

investors as dividend does not significantly influence the movement of share prices of the thirty

(30) selected quoted firms in the NSE collectively. This is in support of dividend irrelevance

school of thought.

OBJECTIVE THREE

To Determine Whether Significant Variation Exists in the Trend of Share Prices Among the

Various Quoted Firms in the Nigerian Stock Exchange.

RESULT

To obtain this result, Analysis of variance (ANOVA) technique was used in determining whether

significant variation exists in the trend of share prices among the thirty (30) in the NSE.

The result obtained revealed that there are significant variations in the trend of share prices

among the thirty (30) selected quoted firms in the Nigerian Stock Exchange. This also indicates

that in an emerging market like that of Nigeria with different institutions and information flows,

prices vary significantly from firms to firm among industries. This implies that trend of share

prices among the thirty (30) selected quoted firms in the Nigeria Stock Exchange vary

significantly. The reasons for the variations include: The firms broad based index - the level of

performance of the firms stocks, the firms relative strength of capitalization, and the firms’

length of quotation.

Therefore, the share price variation existing in the Nigeria Stock Exchange (NSE) is found out

to be true. Hence, share prices vary significantly not only among quoted firms in industry but in

the industries in general.

5.3 CONCLUSION

The basic trust of this work was to examine empirically the influence dividend payouts has on

share prices in a time series of twelve (12) years for thirty (30) quoted firms in the Nigerian

Stock Exchange (NSE).

In Nigeria, the role of the Stock Exchange and the part that security prices play in channeling the

flow of capital into various industries and firms are generally considered important. Hence, the

theory of valuation of income streams has a central and honoured place in the finance doctrine.

However, a special problem of dividend relevance and dividend irrelevance arise in the valuation

of investors of the income streams of corporations. This serious problem has led to a controversy

and confusion over the fundamental factors which underline the movement in the market prices

of common stocks. The unresolved controversy has further disintegrated into two main fractions:

The dividend relevance group and the dividend irrelevance groups. It is against this backdrop

that this study intends to find out the authenticity of these two (2) groups theoretically,

analytically and empirically.

Generally, since the NSE is seen mainly as a channel for mobilizing long term funds. It is then a

measure of confidence in the economy and serves as an important barometer for the economy.

Thus, in order to effectively perform its major function of funding and lubricating the economy,

it must be free from all hitches and it must have depth and breadth, price continuity and liquidity.

This study equally utilizes Simple Regression Techniques to arrive at some conclusion in

hypothesis one and hypothesis two, and also applied the Analysis of variance (ANOVA)

techniques in concluding hypothesis three. After estimation of the model previously done, the

evaluation of results consists of deciding whether the estimates of the parameters are

theoretically meaningful and statistically satisfactory (koutsoyiannis 1977:25). In so doing,

corporate decisions were analysed in terms of how alternative causes of action will affect the

value of the firms stocks. The issues (of the effect of payout on stock prices) underscores the

necessity of knowing how stock prices are established, before attempting to measure how much

effect a decision could have on a specific firm’s stock price, however, our work in chapter two

has already pinpointed the different factors that affects stock prices.

Given the task effect on dividends and uncertainty of capital gains, it is quite plausible that some

investors would prefer high payout firms. Thus, the relationship between dividends and the value

of the firm’s share is not clear cut.Dividends policy of firms may have informational value about

their soundness and profitability, but a higher unstable economic environment such as Nigeria,

renders such information unreliable and uncertain.

Furthermore, in finance theory, there are disagreements over the theoretical specifications of the

expectation relationships between price of stock and dividends payout. However, the findings

here go along side the stands of the work of investment/fiscal theorist-Modigliani’s and Miller’s

(1962), Harkavy (1953), Black and Scholes (1974). Modigliani’s and Miller’s do not agree with

the view that dividends affect the market value of shares. According to them, if the investment

policy of a firm is given, then the dividend policy is a trade off between cash dividends and

issues of common shares. From our result we notice that they confirm to finance expectations in

line with investment analysts.

The Nigerian finding in this study clearly supports that dividend payment is irrelevant and

discards the order theories that try to probe the relevant of dividend payouts, (Okafor 1983:163).

The reason Nigerian findings in this work which did not empirically agree with dividend

relevance is because;

i) In the epical analysis of the effect of dividend payment on share prices using the

thirty(30) quoted firms: 21 quoted firms were insignificant, while only nine (9)

quoted firms were significant, implying that stock prices is not influenced by

dividend payouts which is in line with our submission.

ii) Then out of the thirty (30) selected quoted firms in the NSE, twenty three (23) were

insignificant, while only seven (7) were significant, when a hypothesis two (2) was

tested to analyze the effect of dividend payout ratio on share prices. This is also in

line with the researchers work in Nigerian findings.

iii) Again we also concluded that there is significant variation in the trend of share

prices among the thirty (30) selected quoted firms in Nigeria. This means that the

trend of share prices among the thirty (30) selected quoted firms in the NSE varies

significantly.

However “on the matter of Nigerian findings on this work (that stock prices is not influenced

by dividend payments) our result does not close the issue” it is open to further empirical

research.

5.4 RECOMMENDATIONS

This study is set out to ascertain whether dividend payment have any direct influence on the

movement of share prices on the NSE with particular reference to some quoted firms in the

Nigerian Stock Exchange. The results of this study have shown that dividend payment does not

influence significantly the movement of share prices. In order to improve on the quality of the

Nigerian Stock Exchange as regards to dividend and stock prices, the following

recommendations are proposed;

i. An optional dividend payout should be determined with the firm’s investment

opportunities and any preference that investors have for dividend as opposed to capital

gain. If considerable attention is not given to this issue, the shareholders might become

frustrated and consequently lead to mass disposal of their stocks. Such a situation often

leads to a downward trend in the price of stocks.

ii. Quoted firms should endeavour to formulate dividend policies that will maximize the

shareholders wealth.

iii. Also, adequate information should be provided about the companies’ performance to the

Stock Exchange. The role of information in the evaluation of stocks cannot be over-

emphasized. The link between publicly available information and share price is explained

by different Efficient Capital Market Hypothesis in which Fama (1970) show that

security prices reflect all available information.

iv. It is necessary to supplement the effort of the individual firms, private information centre

should be encouraged as in most advance countries, such centres are often more objective

in their analysis than the one presented by the individual firms.

v. Nigerian firm’s financial managers, who operate under unstable economic situation,

should rely more on the environmental circumstances in place of theoretical presentation

when taking decisions on dividend payouts. Given this, the financial manager might as

well be doing his firm more favour if he chooses to retain more earnings for investment

opportunities rather than pay dividend.

vi. We also suggest that financial managers should have information on the factors in the

economy that affects the behaviours of investors in their purchase of stock before any

public issue.

vii. The financial manager should ensure that he understands the various conflicting factors

which influence the dividend payment and stock prices before deciding on the allocation

of firm’s earnings.

viii. In making investment decisions, investors should focus more on the structure and

tendencies of the management of the different firms and not just on their dividend rates.

ix. The Nigerian Stock Exchange should maintain it’s reliance on the forces of demand and

supply along side it’s biding system, because it tends to give the firms a fair assessment

before the public, in an unstable business environment.

x. The Government should also maintain the existing fixed policy on the dividend payment

in the interest of shareholders. However, some flexibility could be introduced sometimes

to ensure that the firms employ their funds more usefully.

xi. Investors should be encouraged to invest for speculative purposes. This requires a social-

cultural re-orientation by the Stock Exchange.

xii. The present Stock Exchange should review the full listing requirements in order to make

them less stringent so as to be able to absorb small and medium sized companies.

xiii. There should be adequate mobilization of savings from numerous economic units for

economic growth and development if the NSE is to function effectively.

xiv. More so, Government should work out modalities to increase transparency in the market

in terms of dealings, and also enforce policies that will deepen the market by the type of

securities traded so that Nigerians will invest more in shares.

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