The Effect of Taxes on Dividend Policy of Banks in Nigeria

International Research Journal of Finance and Economics, No. 19, p. 48, 2008

8 Pages Posted: 18 Jun 2010

See all articles by Meg Akpomi

Meg Akpomi

Rivers State University of Science and Technology (RSUST)

Matthias Nnadi

Cranfield University - School of Management

Date Written: October 15, 2008

Abstract

The study explores the impact of taxes on the dividend policy of Nigerian banks. It underscores the theoretical assumptions of the M&M theory. The study identified pattern of past dividends, concern about maintaining a target capital structure, current degree of financial leverage, shareholder needs for dividend income, legal rules and constraints; such as impairment of capital, the desire to send favorable signals to investors, the desire to conform to the industry's dividend payout among factors influencing dividend policy of banks. The analyses of the study show a significant correlation between taxes and dividend structure of the banks and also suggest that profit is a major variable in the formation of dividend policy of the organizations. This is supported by the hypothesis, which showed significant effect of profit on dividend and a positive correlation between profit, tax and dividend. The finding corroborates the postulations of some financial theorists and recommends capital gains in lieu of dividend for high taxpayers and that an adoption of a dividend policy by banks particularly in Nigeria should be strictly considered based on the unique circumstances of the bank and not necessarily based on age long traditional factors often formulated by academics.

Keywords: Dividend Policy, Capital Gain, Dividend Income, Clientele Effect and Taxation

Suggested Citation

Akpomi, Meg and Nnadi, Matthias, The Effect of Taxes on Dividend Policy of Banks in Nigeria (October 15, 2008). International Research Journal of Finance and Economics, No. 19, p. 48, 2008 , Available at SSRN: https://ssrn.com/abstract=1285166

Meg Akpomi

Rivers State University of Science and Technology (RSUST) ( email )

PMB 5080
Nkpolu-Oroworukwo
Port Harcourt, Rivers State 500001
Nigeria

Matthias Nnadi (Contact Author)

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

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