The study examined the effect of dividend policy on the market value of 24 listed insurance companies using empirical evidence from Nigeria.
Objectives of the study is to examine the effect of dividend per share (Dps), dividend pay-out ratio (Dpor), and dividend yield (Dy) on market value per share (Mvps), Net asset per share (Naps) and firm age. Hypotheses of the study were stated in line with the objectives. Data were obtained from financial statements of 10 Insurance firms listed in the floor of the Nigerian stock exchange.
The panel data covering a period of eight years from 2011 to 2018 were used. The regression model took the form of the Fixed Effects Model, Random Effects Model, and the Pooled Ordinary Least Square (POLS) model in order to establish the most appropriate regression with the highest explanatory power that is better suited to the data set employed in the study.
Table of Contents
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Study
1.3 Objectives of the study
1.4 Research Question
1.5 Research Hypotheses
1.6 Scope of the Study
1.7 Significance of the Study
1.8 Limitation of the study
1.9 Operational Definition of Terms
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework
2.1.1 The Concept of Dividend
2.1.2 Types of Dividend payment
2.1.3 Essential Dates of Dividend Payments
2.1.4 Dividend Policy
2.1.5 Types of Dividend policy
2.1.6 Factors that affect Dividend policy
2.1.7 Firm Market Value and Dividend Announcements
2.2 Theoretical Framework
2.2.1 Relevance Theory of Dividend Policy
2.2.1.1 Graham and DODD traditional model
2.2.1.2 Gordon’s capitalization model
2.2.1.3 Walter’s model
2.2.2 Irrelevance Theory of Dividend policy
2.2.3 A Bird-in-the-Hand Theory of Dividend Policy
2.2.4 Signaling Theory of Dividend Policy
2.2.5 Residual Theory of Dividend Policy
2.2.6 Clientele Effect Theory of Dividend Policy
2.2.7 Agency Theory of Dividend Policy
2.2.8 Pecking Order Theory of Dividend Policy
2.3 Empirical Framework
2.4 Knowledge Gap
CHAPTER THREE: METHODOLOGY
3.1 Research Design
3.2 Sources of Data
3.3 Population of the Study
3.4 Sample Size and Techniques
3.5 Description of Variables
3.6 Model Specification
3.7 Estimation Procedure
3.7.1 Pre Test; Panel Unit root
3.8 Estimation Technique
3.8.1 Panel Regression Analysis
3.8.2 Pooled Regression Model (PRM)
3.8.3 Fixed Effects Model (FEM)
3.8.4 Random Effect Model (REM)
3.8.5 Model Selection in Panel Data Analysis
3.9 Apriori Expectation
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Data Presentation
4.3 Unit Root Test
4.4 Test of Hypotheses
4.4.1 Hypothesis One
4.4.2 Hypothesis Two
4.4.3 Hypothesis Three
4.5 Discussion of the Panel Regression Result and the Tested Hypotheses
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
5.4 Contribution to knowledge
5.4 Recommendation for Further Research
Research Objectives and Key Themes
The primary objective of this research is to empirically investigate the effect of dividend policy on the market value of financial institutions listed on the Nigerian Stock Exchange for the period 2011-2018. The study seeks to determine whether dividend payouts influence stock market valuation within the insurance sector.
- Analysis of dividend policy indicators including payout ratio, dividend yield, and dividend per share.
- Evaluation of the relationship between dividend decisions and market value per share within the insurance industry.
- Application of panel regression analysis to determine the most appropriate model (Fixed Effects, Random Effects, or Pooled OLS).
- Investigation of the influence of firm-specific control variables like Net Asset per Share and firm age on market value.
- Testing the relevance of established financial theories, such as the Bird-in-the-Hand theory and the Clientele Effect, in the context of the Nigerian financial market.
Excerpt from the Book
1.1 Background to the Study
Over the years, the link between dividend payments and market value has continued to generate empirical debates among scholars. The debates have particularly been intensified by the empirical study done by Miller and Modigliani (1961) and other supporters of the Irrelevance theory of dividend policy, which contrasts the findings of Graham and Dodd (1951), Gordon (1959), Walter and Linter (1962). The global financial crisis of 2007 – 2011, which can be compared to the great depression of the 1930s that triggered the capital market crisis in many developed and developing countries, including Nigeria, is another problem causing unsteady dividend policy of firms. Due to the disparity in the interest of shareholders and their agents, treatment of reserves has become a problem because of the dual expectations of maximizing the shareholders' wealth as well as making the organizations a going concern, and managers have been left in a wandering imagination over dividend payment. However, both theoretical and empirical evidence on the effect of dividend policy and market value has remained largely inconclusive. The extant literature has proposed a number of theories, hypotheses, and models from various schools of thought in an attempt to solve the puzzle on dividend policy, but no consensus has been achieved to date.
The primary schools of thought in dividend policy and market value are the irrelevance theorist (Miller & Modigliani, 1961; DeAngelo & DeAngelo, 2007); the relevance theorist (Lintner, 1962; Khan, Nadeem, Islam, Salman & Gill (2016) and the Clientel effect theorist Black and Scholes (1976); amongst others. These scholars have continued to come out with different findings in their researches, thereby making managers remain in confusion over dividend decisions.
Summary of Chapters
CHAPTER ONE: INTRODUCTION: This chapter introduces the research problem, objectives, and significance, focusing on the debate regarding dividend policy and firm market value in the Nigerian insurance industry.
CHAPTER TWO: REVIEW OF RELATED LITERATURE: This section provides a conceptual and theoretical overview of dividend policy theories, including relevance, irrelevance, signaling, and pecking order theories, while highlighting empirical studies.
CHAPTER THREE: METHODOLOGY: This chapter outlines the research design, data sources, and econometric modeling techniques used to analyze the secondary data collected from listed insurance firms.
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS: This chapter presents the descriptive statistics and the results of panel regression tests performed on the independent variables to test the research hypotheses.
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS: This final chapter synthesizes the results, provides conclusions regarding the impact of dividends on market value, and offers recommendations for management and further research.
Keywords
Dividend Policy, Market Value, Dividend Payout Ratio, Dividend Yield, Dividend per Share, Nigerian Stock Exchange, Financial Institutions, Insurance Industry, Shareholders Wealth, Panel Regression, Capital Structure, Net Asset per Share, Financial Performance, Signaling Theory, Dividend Puzzle.
Frequently Asked Questions
What is the core focus of this research?
The research examines the impact of various dividend policy measures on the market value of financial institutions, specifically focusing on 10 insurance companies listed on the Nigerian Stock Exchange between 2011 and 2018.
What are the central themes discussed in the study?
The central themes include the relationship between dividend payouts, firm market value, the role of corporate financial management, and how investors respond to dividend announcements in emerging markets.
What is the primary objective of this work?
The primary objective is to empirically test whether dividend payout ratios, dividend yields, and dividends per share have a significant effect on the market value per share of listed insurance firms in Nigeria.
Which scientific methods are applied in the analysis?
The study utilizes a quantitative approach, employing panel data regression techniques, specifically comparing Pooled Ordinary Least Square (POLS), Fixed Effects Models (FEM), and Random Effects Models (REM), alongside unit root tests for stationarity.
What does the main body of the work cover?
The main body covers a rigorous literature review of dividend theories, a detailed methodology section, and an empirical analysis section that presents and discusses the regression results based on the formulated hypotheses.
Which keywords characterize this research?
Key terms include Dividend Policy, Market Value, Nigerian Stock Exchange, Insurance Industry, Dividend Payout Ratio, and Panel Regression.
Why are insurance companies specifically selected for this study?
Insurance companies were selected because the author identified a research gap; previous studies in Nigeria primarily focused on the manufacturing and banking sectors, leaving the insurance industry as an under-researched area regarding dividend policy impact.
What is the "dividend puzzle" as referenced in the document?
The "dividend puzzle" refers to the long-standing, unresolved academic and professional debate regarding why companies pay dividends and whether these payments truly influence firm value, given the conflicting theoretical viewpoints from economists.
How does the study conclude regarding the Clientele Effect theory?
The study supports the Clientele Effect theory, suggesting that firms should maintain a steady dividend policy to provide positive signals to the market, which in turn influences market value positively.
- Quote paper
- Joan Onyinyechi Njoku (Author), 2021, Dividend Policy. The Effect on the Market Value of Financial Institutions in Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/1159156
