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DIVIDEND POLICIES (A
CASE STUDY OF SOME QUOTED COMPANIES LISTED IN NIGERIA STOCK EXCHANGING)
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Dividend policies decision is concerned with the
determination of the corporate earnings that is generated through the
successful operation of the company in a financial year, which is to distribute
among the key players that ensure the realization of the successful outcome of
he operation of the organization and the amount of the proportion of this
earnings to be retained.
Dividend earnings decision policy is widely considered
in the business world as strategic in
corporate finance as well as corporate
performance and growth. Dividend policy directly influences the behavioural
pattern of the investor ie. Shareholders.
Because the purchaser of the company i.e shareholder actually buys a
dividend expectation; because of the dividend policy decision implication on
the behavioural pattern of the shareholder be it positive or negative the
corporate world impose the responsibility of this great task of he board room
affairs.
Dividend policy decision as a tool in the strategic corporate
finance as well corporate performance and growth affect the share price as well
as cost of capital. In other words on
option dividend policy is the policy that maximizes the wealth of shareholder.
Due to obvious reasons shareholders consider impotence to
dividend. The importance that the individual shareholder places on dividends
depends on his level of wealth and preference for capital gains amongst others.
In an environment with progressive personnel income taxes the individual with
more wealth will tend to profess capital appreciation on shares then dividend.
At a lower level of income the capital gain tax rate is higher then the
personal income tax rates however the reverse is the case with increased
income. The wealthy individual among the diverse shareholders may then prefer
capital appreciation on his share due to the at mentioned reasons.
Though the bulk of he shareholder nay not be in this category
the company is then placed in a situation of reconciling the difference or
taking the potion that seems more favovrable to the company. This is ht some things as saying that the
management of the company will take the option that optimizes the value of he
company’s shares.
It is often claimed that the company’s investment decisions
and dividend decision are independent of the shareholder’s decision. It should be noted that this might not be
entirely true some there is replay procedures that protected the aggrieved
shareholders.
Beside these the shareholders might exercises their right
through the selling of their shares on the stock exchange and this has negative
consequences on the value of the company’s share in the market which in turn
affect the fortune of he company.
The primary aim of this research work is to find out whether
the in dividend pays out stimulates responses on shares value. It is believes in some garters that the
dividend pay out has something to do with value of shares yet some people
stated otherwise. Dividend in this
content means the amount distributed to shareholders of a company by way of
return investment that are not so interested in the measure of soundless of he
company. This issue is even more
pronounced when criticism that are normally levied against accounting measure
of profitability are mentioned.
There are many criticisms regarding the measure of
profitability in the accounting sense.
E.g. profit measurement by accountant depends on the assumption and
policies used. Hence the ability of he
company to pay dividend can be stated to measure the sounded and profitability
of a company.
1.2
STATEMENT OF PROBLEM
Though dividend policies decision is guided by legal
framework as prescription in the company and allied matters decree (CAMD) of 1990 as to what constitute dividend
in the corporate rate earning and the method in which the dividend policies
decision can be taken.
Although there are many
constraints inherent in dividend policies research work reveals other
factors to be considered in order to determine and study will only concern on
two opposing view or argument associated with dividends policy decision.
These arguments can be highlighted as thus:
i. IRRELEVANT
ARGUMENT/ SCHOOL OF THOUGHT
This posted that given the investment decision of the firm
the dividend pay out is a merely details that dividends policies does not
affect the wealth of the shareholders that is it is of need.
ii. RELEVANT
ARGUMENT
Posited that high tax payer prefer low dividend yield while
institutional investor who do not pay tax prefer high yield or profit
1.3 OBJECTIVE OF THE STUDY
The objective of he study include the following:
i. To
analyze the basic models of share valuation with a view to answering such
question as what are their simikritics and difference what is the extent to
which dividend payout affect the value of shares of source listed companies
etc.
ii. To
determine whether Education in dividend have anything to do with the value of
shares.
iii. To
show whether any of the shares valuation models cannot with reality
1.4
STATEMENT OF THE HYPOTHESIS
An hypotheses is a statement of fact to study put forward by
a researcher as a starting point for reasoning to guide him in human research
work which may be true or false valid or otherwise if he data collected by the
research indicated that majority support the fact that is valid it is therefore
accepted otherwise it is not and hence rejected for the purpose of this
research of study the major hypothesis considered are.
H0: Fluctuation in
dividend payout by some listed companies has effect on the value of
shares.
H1: Fluctuation in
dividend payout by some listed companies has no effect on the value of
shares.
1.5
SIGNIFICANCE OF THE STUDY
The research work is intended to be of food use to anybody
involved in the process of dividend payments and receipt. For example companies management and
investor. The study by analyzing some
dividend share valuation models intention show the logic behind these modems.
There is no doubt that some shareholders will be expecting
high dividend some might be different and source even prefer no dividend
situation. In fact some attend annual (general) meeting (ACM) in other to know
the actual dividend declare for the year.
However it is beneficial to the companies in the policy
making such as follows.
i. It
enhance the image the organization e.g financial soundness
ii. It
will attract investors
iii.
Increase market shores prices
iv. Room
for expansion
v. It
increase and enabling the sources for fund in the capital market.
The study will be reference sources to future researchers
1.6 SCOPE OF
THE STUDY
As a result of the fact that the possibility of obtaining
internal information is very remote data analysis will be restricted to facts
obtained from listed company’s published financial statement and stock exchange
daily official lists.
The study looks at the patterns of some shares before
dividends are declared and the behaviour of such shares to the public and
investors as a whole. This is with a
view to identifying whether shores prices respond to dividend declaration and
payout.
The day in which dividend are approved for payment by the
shareholders at the annual general meeting is assumed to be the day that such
dividends are declared and the day when dividend warrants are posted to
respective shareholder is regarded as the payout day.
1.7
LIMITATION OF STUDY
This study will concern itself with situation in the stock
market as they relate to the year 1998 1999 2001, 2002.
The research work will limit itself to only principles of
dividends terms and abbreviations as they effect the scope of shoes value.
1.8 DEFINITION OF TERM
i.
E.P.S (earning per shore) this is the profit after tax of a company
dividend by the number of shores in issued and ranking for dividend.
ii.
Profit after tax: That is
number of shores in issued and ranking for dividend
iii. Price
earning ratio: It shows the ratio of
earning to the market value of shores.
iv.
Interim dividend: This is a
dividend a company prior the end of its financial year.
v. Pay out ratio: This is the proportion of total earning
(after tax) that is distributed as dividends.
vi.
Mm: Modigiliani and Miller:
There are two professors of finance who made extensive research on dividend
policy and capital structure.
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