Does Working Capital Management Matter in Dividend Policy Decision? Empirical Evidence from Nigeria

Abstract

This study examines the relationship between dividend payout ratio and working capital management and the effect of firm’s working capital management practice on its dividend payout ratio. The working capital management is measured by the net trade cycle, current ratio and debt ratio. The data used in this study were obtained from twelve manufacturing companies quoted on the Nigeria Stock Exchange between 2002 and 2006. The data wer analysed using the Pearson product moment correlation technique and ordinary least square (OLS) regression technique. The results show that dividend payout ratio was influenced positively by profitability and net trade cycle but negatively by growth rate in earnings. Corporate profitability, working management, and growth in earnings have statistically insignificant effects on the dividend payout ratio at 5% confidence level. Hence, we can conclude that from this study working capital management is not significant in dividend policy decision. However, the result cannot be generalized owing to the problem of small sample size, seemingly poor model specification and failure to adopt the robust modern statistical technique provided by the fixed and random effects of panel data regression technique.