Dividend Policy and Firm Value of Deposit Money Banks in Nigeria

Abstract

This study empirically examined the impact of dividend policy on firm value of deposit money banks in Nigeria, using three firm value measures (average share price-ASHP, price revenue ratio-PRR and economic value added of a firm- EVA) which were individually regressed on dividend payout ratio, dividend yield, earnings per share and retained earnings for twelve (12) sampled deposit money banks between 2011-2020 period. The study utilized descriptive statistic, correlation analysis and panel data estimation techniques to examine the relationship between dividend policy and firm value in Nigeria. The empirical results revealed that dividend policy has a significant impact on firm value in Nigeria. Specifically, dividend payout ratios, earnings per share and dividend yield have positive and significant effect on firm value (using ASHP, PRR and EVA). On the contrary, retained earnings ratio demonstrated significant negative effect on the firm value of deposit money banks in Nigeria. Against the backdrop of these findings, there is a clear indication that current activities in relation to dividend policy are the most important consideration for investors as driving valuation of banks in Nigeria. Long-term financial features of the banks do not appear to matter significantly to investors for valuing banks in Nigeria. In essence, banks seeking to optimize its long-term value in the market must pay close attention to improvement in dividend policy by making sound and efficient dividend policies and strategies that would enhance firm value of deposit money banks in Nigeria.