Abstract
This study was carried out to ascertain the impact of agency cost on dividend policy of Oil and Gas Sector in Nigeria. To achieve this broad objective, the following variables, asset to sales ratio, free cash flow, and debt level were examined while new variables were also introduced in the place of profit and growth as variables explaining agency cost.[Unknown1]
The study employed the use of ex-post facto research design and panel least square analysis technique to examine the causal relationship between these variables. The data used in the study was obtained from the annual reports and account of the listed twelve (12) Oil and Gas companies quoted on the floor of the Stock Exchange Group market ranging from 2013 -2019). Descriptive statistics, correlation analysis, panel least square regression analysis were also carried out.
From the result of the analysis carried out, it was observed thatasset to sales ratio was found to have a negative relationship with dividend policy and it was also not significant when tested at 5% level of significance. The study indicates a positive link between free cash flow and dividend policy. The result of the analyses revealed that debt level has a negative impact on dividend policy. Profit was found to have a negative impact on divided policy as revealed by the coefficient value. It was therefore recommended that since dividend policy represents agreed guidelines which regulate management decision in sharing profit to shareholders, this variable should be considers as a vital variable in the oil and gas industry. This is because dividend payments are often employed to mitigate agency cost.When cash is paid as dividend, it reduces the total amount of cash at the disposal of managers and as such, managers have no choice than to look to the direction of the stock markets to raise funds in form of external financing.
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