Abstract
This study tested Miller and Modigliani dividend policy irrelevant hypothesis in Nigeria. The objective was to examine the validity of the irrelevant hypothesis. Tobins Q measure of market value was modeled as the function of dividend payout ratio, retention ratio, dividend per share and dividend yield. 20 firms were selected on the basis of availability of information necessary for conducting the study and the readiness of annual financial reports for the period of 10 years from 2008-2017. Cross sectional data was sourced from financial statement and annual reports of the firms. Based on the analysis of fixed and random effect results, random effect was used. The study revealed that 75 percent variation on the market value can be predicted by variation on independent variables in the regression model. The beta coefficient of the variables found that all the independent variables have positive and significant relationship with market value of the selected quoted firms. The study concludes that dividend policy is relevant as oppose to the irrelevant hypothesis of Miller and Modigliani. Its therefore recommend that managers should manage their dividend policies effectively since it is relevant and has significant effect on market value and optimal dividend policy which implies policy of trade-off between dividend payout and retain earnings should be well managed and investors should have adequate knowledge of dividend policy of quoted firms that will correspond with their investment objectives of avoid conflict in dividend policy.
Highlights
Dividend policy behavior assumes that the change in dividend can be explained by previous period dividends and target dividends, which can be expressed as a fraction of the profit for that period. Lintner (1956) first published a basic model of this type of dividend policy
Discussion of Findings The opinion that dividend policy has effect on the market value of listed companies has long been a point of departure among scholars in the field of finance, what is today known as the dividend puzzle
The study used pooled panel data regression analysis to test the irrelevance of MM hypotheses of quoted companies in Nigeria
Summary
Dividend policy behavior assumes that the change in dividend can be explained by previous period dividends and target dividends, which can be expressed as a fraction of the profit for that period. Lintner (1956) first published a basic model of this type of dividend policy. Lintner (1956) first published a basic model of this type of dividend policy. His model is based on a series of interviews with executives about their dividend policy. According to Lintner's interviews, it was clear that the corporate dividend policy was not uniform. Management determines the amount or portion of profit to be distributed as dividends through its dividend policy and the amount withheld for internal operations. Along with its capital structure, dividend policy has been one of the first areas of corporate finance to be analyzed in a rigorous model, and has since been one of the most studied topics in modern finance
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