Dividend Behaviour of Deposit Money Banks: The Case of Nigeria

Abstract

The driving force behind this study is the fact that dividend policy formulation is a subject of controversy from the theoretical point of view as well as the inherent problems that firms are practically confronted with in arriving at a particular dividend policy that would meet the expectations of the shareholders vis-à-vis their own interests. Therefore, it becomes imperative to look at the Dividend behaviours of some selected Nigerian commercial banks in relation to their earnings and market values. This study took it course from two theoretical perspectives, namely dividend is relevant and irrelevant views in relation to market values of companies. The population of this study consisted of the current 22 licensed Deposit Money banks in Nigeria. However, 6 banks were randomly selected from 12 of the 22 commercial banks currently on the listing of Nigeria Stock Exchange. Secondary data were collected for the purpose of this study. They were obtained from the website of Nigeria Stock Exchange and annual financial statements of the selected banks. Pearson Product-Moment Correlation Coefficient was employed as the statistical tool to test the hypotheses. The study found out that there is a significant relationship between the earnings and dividend policies of Nigerian commercial banks, while there is also a significant relationship between their dividend policies and market values. The implications of these findings are that there would be always pressures on the banks for better performance as well as the need to pay dividends. The study therefore recommended that; Nigerian commercial banks should ensure they always achieved improved financial performance yearly to enable them meet up current year dividend payments as well as build up retained earnings that could be used to offset dividends payments in bad years. By so doing they could achieve stable dividend policy. Similarly, Nigerian commercial banks should reduce their reliance on internal source of finance in order to have adequate liquidity capacity to meet up dividend payments as at when due and not just declared dividends and no payments.