Corporate Dividend Policy and Firm Value: Evidence from Selected Deposit Money Banks (DMBs) in Nigeria

Abstract

Research Purpose: This study aims to analyse and assess how Dividend Payout (DPA), Capital Adequacy Ratio (CAR), Net Interest Margin (NIM), and Long-Term Debt Ratio (LTDR) impact the value of banks in Nigeria over the period from 2013 to 2022. The study constructs and tests two hypotheses to achieve this goal.

Methodology: The study adopts a panel regression model that includes pooled Ordinary Least Squares (OLS), fixed effects, random effects, and the Hausman test for decision analysis. The Hausman test results indicated no sufficient evidence to reject the null hypothesis, suggesting that the differences between fixed and random effect estimation coefficients are not significant. Consequently, the random effect estimation was used as it provides the most consistent and efficient estimation.

Findings: The random effect estimation reveals the following impacts on Return on Assets (ROA):

• The coefficients of Dividend Payout (LNDPS), Net Interest Margin (LNNIM), and Long-Term Debt Ratio (LNLTDR) show a positive impact on ROA.
• The Capital Adequacy Ratio (LNCAR) shows a negative impact on ROA.
• Among these, LNDPS and LNCAR have a significant impact on ROA, as their p-values are less than 5%.

Conclusion: The study concludes that dividend policy and capital adequacy significantly affect the return on assets for banks in Nigeria. The findings emphasise the importance of aligning dividend policies with long-term growth and profitability goals.

Recommendations: It is recommended that Deposit Money Banks (DMBs) should synchronise their dividend policies with their long-term growth and profitability objectives to enhance their value.