The Determinants of Dividend Payout Ratios of Nigerian Non-Financial Firms

Abstract

Research on dividend payout policy is huge in corporate finance. There is however a consensus that it is still an unresolved area. Emerging market research on payout policy generally lags behind those of industrialized countries. This study investigates the determinants of dividend payout in Nigeria to enrich the developing country perspective on the subject. Post Miller-Modigliani (1961) study, asymmetric information models, agency models, tax model and behavioural models have emerged with insufficient empirical test in Nigeria. This study utilizes panel data regression techniques such as two-stage least squares (2SLS), generalized method of moments (GMM) and GARCH to investigate how firm-specific attributes that underscore information asymmetry, agency, transactions and bankruptcy costs affect payout ratios. The key finding of this study is that dividend is an increasing function of the following firm-specific variables namely: book leverage, short-term debt usage, marginal tax rate, firm size and profitability while the attributes that exert negative influences on payout are market leverage, asset tangibility, earnings volatility, firm uniqueness, financing deficit and age. The results confirm the predictions of trade-off, pecking order and agency models of dividends albeit in varying degrees. The study recommends predictable payout policies in line with investors’ expectations in order to facilitate firms’ continuous access to finance.

Keywords: payout policy, dividends, asymmetric information, agency problem, taxes

JEL Classification: G35, G32, G10