Impact of Dividend Policy on Shareholders’ Wealth: A Study of Agriculture Industry in Nigeria

Taiwo Azeez  OLANIYI; Taiwo Fafemi  ENITAN

OLANIYI Taiwo Azeez University of Ilorin
Taiwo Fafemi ENITAN University of Ilorin

Keywords: dividend, shareholders wealth, policy, earnings, market price

Abstract

The existence of information asymmetry, agency problems, taxes, and transaction costs make dividend policy a controversial corporate decisions among all the three corporate finance decisions-investment, financing and dividend that managers face in corporate world. A portion of the literature has it that dividend payment affect shareholders wealth as well as availability of investible funds in the agricultural sector; which invariably determines the propensity to transform various developmental parameters (employment, foreign exchange, capital inflows) in Nigeria into economic growth and development. This study investigates the effect of dividend policy on shareholders’ wealth in agricultural firms in Nigeria using ex-post facto research design to collect secondary data spanning 2009-2015. Using multiple regression of OLS, the results show that a unit change in earnings per share (EPS), dividend per share (DPS), dividend pay-out (DPO) and price-earnings (P/E) lead to 11%, 25%, 68% and 32% positive increase in shareholders wealth measured by market price per share (MPS) respectively. Further result shows that without paying dividends, MPS of agricultural firms in Nigeria will fall by 143% while 73% of the changes in MPS is explained by changes in DPS, DPO and P/E ratio. The study thus concludes that dividend policy has significant positive effect on shareholders’ wealth at 5% in agricultural firms in Nigeria. The study recommends the management of these firms should put in place a good and robust dividend policy with a view to enhancing profitability and attract investments into the Nigerian agricultural sector.

JEL CODES: M4, M41

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