Determinants of Dividend Payout in the Nigerian Banking Industry : Current School News

The Determinants of Dividend Payout in the Nigerian Banking Industry



The Determinants of Dividend Payout in the Nigerian Banking Industry.


Dividend policy in the Nigerian Banking Industry differs as each bank decides on what, how, and when to pay dividends to its shareholders. The purpose of the study is to ascertain the determinants of dividend payout in the Nigerian banking industry. The specific objectives were to determine the effect of profit after tax, shareholders fund, liquidity, risk, and financial leverage on the dividend payout in the Nigerian banking industry.

The study used five sampled banks quoted on the banking subsector of the Nigerian Stock exchange as of December 2008. Secondary data were used for the research work and the data were obtained from Nigerian Stock Exchange (NSE) Fact Books from 2001 to 2008 and the financial Statement of the sampled banks for all the years covered by the study. The variables used were the dividend payout, profit after tax, shareholders fund, etc.

The analytical technique used was the multiple regression analysis. The findings reveal that profit after tax, shareholders fund, liquidity, risk, and financial leverage are major determinants of dividend payout of banks in Nigeria, while liquidity and risk are the most critical factors determining dividend payout of banks in Nigeria. Nigerian Banks should improve their liquidity position by retaining more earnings and reducing loan loss. 


Understanding dividend policy had for many years been one of the most significant challenges in finance. According to Bhattacharyya et al (2004:2) “Despite decades of study, we are yet to understand completely the factors that influence dividend policy and the manner in which these factors interact”. Black (1976) opines that “the harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just don’t fit together”.

Why do corporations pay dividends? Jose-Maria Diez Esteban (2001:16) observes that “In market-oriented countries, financial entities will try to increase their market presence through their dividend policy in order to have a good company reputation, while in bank-oriented countries, the most profitable entities pay higher dividends to reduce managerial discretionally in the use of funds.

He further added that “companies with a higher level of debt payout lower dividends as in this case the good reputation the company seeks is with its creditors to ensure the attainment of debt in the future. It will therefore fulfill the restrictions to dividends proposed by the debt contracts- principally in market-oriented countries or by legal regulations-more common to bank-oriented countries.” 

Bhattacharyya (2003) in Bhattacharyya et al (2004:2) develops a model of dividends payout that is based on the principal-agent paradigm. In his model, uninformed principals (Shareholders) set up a menu of contracts to screen agents according to productivity type (which is known to the agent). Higher quality agents are those who have access to more positive net present value (NPV) projects. 


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CSN Team.

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