Effect Of Dividend Payment On Corporate Performance Nigerian Banks

Effect Of Dividend Payment On Corporate Performance Nigerian Banks

Abstract

“Relationship between dividend payment and corporate performance of Access Banks Plc and Guarantee Trust Bank Plc” is the title of this research project. The researcher looked at how certain Nigerian banks’ earnings per share and dividends per share related to one another. Analyzes the connection between the size of the company and the dividend per share of Nigerian banks. examined the connection between the dividend per share and return on asset of Nigerian banks. evaluated the connection between the dividend per share and the net asset value per share of Nigerian banks. Regression analysis was used in the data analysis, and the researcher only used secondary data from the six years’ worth of annual reports and accounts of the two mentioned banks (Access Bank Plc and Guaranty Trust Bank Plc) listed on the Nigeria Stock Exchange. The study discovered a strong correlation between earnings per share and dividends per share of particular Nigerian banks. Additionally, it was shown that there is a strong correlation between firm size and the dividend per share paid by Nigerian banks. The researcher also discovered a connection between the dividend per share paid by Nigerian banks and return on assets. According to the analysis, there is a strong correlation between the net asset value per share and dividend per share of Nigerian banks. The researcher advises organizations to make sure they have a strong and good dividend policy in place based on the findings. This will increase their profitability and draw in investors for the businesses. To prevent a planned diversion or excessive holding of unclaimed dividend warrants, company directors should be required to update the records of shareholders, including their next-of-kin. The required processes for the recognition and use of profit resulting from the investing of unclaimed dividends should be carried out.

Chapiter 1

Introduction

1.1 Study’s Background

According to Eriki and Okafor (2002), a dividend is the profit that investors receive as a result of their investment in the company’s stock. The allocation of net profit after taxes between payouts to shareholders (common shareholders) and retention for reinvestment on behalf of the shareholders is what dividend policy is concerned with, according to Kempner (1980). Determining the proper quantity of dividend to be given to shareholders and deciding whether or not to offer non-cash alternatives like scrip dividends are challenging decisions for both public and private limited corporations. So says Davidson (1990). A review of the evidence for both shareholder clienteles and any potential interactions between firms’ dividend policies and important operations like internal investments is prompted by the existence of some share price reactions to dividend announcements. Cross-sectional fluctuations in dividend policy are therefore caused by an underlying issue since a component of the idea of dividend policy is a continuum of control allocations between managers and investors. Not because of issues with agency or private information, but rather because of potential discrepancies in beliefs that may result in a dispute over the worth of projects that are available to the firm, the distribution of controls between the manager and investors is crucial. The “Corporate Performance” component is the fundamental factor.According to Samuel (1989), “Corporate performance is at the heart of the managerial function of an organization.” The development of a modeling methodology to aid in the diagnosis of past performance and afterwards give a framework for analyzing the impact of changes in operating parameters as a reference for future planning is the major goal of corporate performance analysis. If an organization is performing well, there will be little to no conflict between the management and the shareholders, which is measured by the choice of the management form of wealth to be held. (2008) Anyigbo

In measuring corporate performance, the focus is on determining how efficient and effective the organization’s existing behavior is. For each of these viewpoints, particular measures for attaining these goals are established in order to gauge overall business success. To attain total efficiency and effectiveness and to be successful in the long run, each of these views is essential and needs to be taken into account concurrently. Performance evaluation will become “unbalanced” if any aspect is either overemphasized or underemphasized. The idea is to provide a set of metrics, both financial and non-financial, through which a business may manage its operations and balance many metrics to accurately track success.

According to Modigliani and Miller (2011), “Dividend relevance theory or dividend irrelevance theory can be used to describe the theoretical principles underlying the dividend policy and its impact on firms.” Therefore, in a world without taxes or transaction costs, dividend policy has no bearing on the cost of capital and the value of the firms. This demonstrates that the expected return needed to persuade investors to hold a firm’s shares will be independent of how the firm structures its dividend payments and fresh share issuances. Investors can generate any income pattern by purchasing and selling shares. It should be noted that a company’s assets, investment prospects, anticipated future net cash flows, and capital cost are unaffected by the decisions made about its dividend policy.

Performance is improved by using leverage policies and dividend payments as backup mechanisms for regulating the agency cost of free cash flow. The level of activity within an organization will rise to generate more income and have surplus retained earnings to fulfill the standard set if a firm’s policy is to pay dividend to shareholders each year end.

Dividend policy “has the effect of destabilizing dividend because the average sufficient to have any appreciable effect on the size of the distribution will affect only a prolonged increase or decrease in profits.” Because it is a cautious dividend policy, there will be significant accumulation of retained earnings over time because only half of all profits will be released. The consistency of dividends, which could be maintained for a while even in the face of actual losses, will unquestionably be further reinforced by this. It might also spare the business from using outside sources of funding. There is no connection between the retention under this policy and the availability of successful investment opportunities. The danger is that funds that would otherwise sit idle would be absorbed by ventures that produce less than their true cost of capital. Dividends are a source of income that are due to shareholders. The present value of this sequence of dividend payments is equal to the share’s value.

Dividend policy is one of the numerous elements that impact corporate organizations’ performance. A management opportunism can be controlled through dividend policy. Empirical research demonstrates that businesses in developing nations, such as Nigeria, smooth their income and, consequently, their dividends. Corporate dividend policies differ over time and between nations, particularly between developed, developing, and emerging capital markets. If a corporation’s dividend payments determine its worth, then the dividend policy will have a direct impact on the cost of capital for the company. But is there a strong link between the dividend policy and a company’s performance in terms of investment profitability and EPS? This research project seeks to provide an answer to that query.

1.2 A description of the issue

The primary reason that this research was necessary is that prior studies have demonstrated that Nigerian banks’ financial performance is extremely subpar when compared to that of their counterparts in other developed nations. As a result, the researcher is primarily interested in the relationship between financial performance measures and factors that influence dividend policies in the Nigerian banking sector.