Agency Cost and Dividend Policy in Nigerian Non-Financial Quoted Firms

Abstract

Purpose This paper investigated the effect of agency cost on dividend policy in the Nigerian nonfinancial listed firms Design/Methodology/approach - This paper applies the Ordinary least square to a multiplicative interaction model in which the effect of agency cost on dividend policy is conditional on leverage, growth, free cash flow and profitability. Three models were used in this study which include the dividend policy variables and control variables, with these variables interacted multiplicatively to ascertain conditional effect of agency cost on dividend policy. Findings- according to our findings, dividend policy was significantly determined by agency cost. However, only executive compensation is found to be significantly related to dividend policy. Large shareholder monitoring and insider ownership were found not to be significant determinants of dividend policy. Originality/value – This paper uses dividend to total assets as a measure of dividend policy and considers the impact of agency on it but conditional on other important variables as leverage, growth, profitability and free cash flow. The implication therefore is that the investor should factor executive compensation in selecting firms for investment portfolio where such investor has dividend payment as priority.