Dividend Policy and Firms’ Value Nexus: Do Walter and Gordon Relevance Theories Hold Water?

Abstract

This study is an attempt to join on the argument on whether dividend policy is either relevant or irrelevant on the firms’ market value in Nigeria. To achieve this, the data were obtained from selected 20 quoted firms from ten sectors of the Nigeria economy spanning from 2015 to 2021, taking care of the variables; dividend per share, earnings per share, and market value proxied by market price per share obtained from Nigeria Exchange Group and the firms’ annual and accounting reports for the periods. In testing the specified models, all the variants of the Panel data Analysis techniques; Pooled Regression, Fixed Effects and Random Effects were employed. In addition, the prepositions of the Pooled Regression versus Fixed Effects and Random Effects versus Fixed Effects were compared using Likelihood and Hausman test respectively. The results of Pooled Regression, Fixed Effects and Random Effects found dividend per share and earnings per share significantly impacted on market value. Again, both the Likelihood and Hausman tests favour the fixed effect that the unobserved factors in firm are significant or that the correlation between observed and unobserved factors are significant. In the light of the findings, the researchers recommended among others that investors should be consistent with their dividend payment (smooth dividend payment) to attract investors. Again, this study has added to the stream of knowledge that firms should consistently pay dividends to their shareholders as a form of shareholders wealth maximization. This is a form of financial signaling or dividend announcement that will attract investors.