Impact of Dividend Decision on Firm Market Value: Evidence from Nigeria

Abstract

This paper examines the impact of dividend policy on a firm's market value using the panel data methodological framework. The panel consists of 7 publicly quoted companies from three different sectors (Construction, oil and Gas and Consumer goods) in Nigeria observed for 9 years from 2007 to 2015. Three panel data models and techniques are used. In agreement with the signaling theory, the study finds consistent evidence of a significant positive relationship between dividend policy and market value of a firm. There is evidence of a feedback causal relationship between dividend policy and the firm's market value. However, the causality that runs from market value per share to dividend per share is significant at 10% level. The unobserved firm-specific effects are found to be significant explanatory factors for the variation in the firm's market value. However, these firm-specific effects are uncorrelated with other explanatory variables in influencing the market value of a firm. The study therefore, concludes that dividend announcement is a signal that all is well with the company and convey important information that are incorporated in stock prices in Nigeria.