Business administration Department Research project Topic Chapter 1-5 titled – The Impact Of Dividend Policy On The Stock Prices Of Quoted Firms In Nigeria
CHAPTER ONE
INTRODUCTION
- BACKGROUND OF THE STUDY
Dividend policy in general term refers to the percentage of earning that an enterprise can make in its internal financial decisions. The objectives of choosing a dividend policy should be to maximize the returns made by an enterprise to its shareholders. Dividend as it should be realized are not limited to cash, it may involve some other items of assets. Soyode points out at dividend encompasses the distribution of any asset or additional stock split dividends and other practices by which earning or asset can be distributes to shareholders. Dividends ate projects made by a corporation to its shareholders members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses; it can either be invested in the business called retained earnings or it can be paid to shareholders as a divided many corporation retain a portion of their earnings and pay the reminder as a dividend for a joint stock, a dividend is allocate as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding for the joint stock company paying dividend is not an expenses rather, it is the division of an asset among shareholders companies usually pay dividends on a fixed schedule a special dividend to distinguish it from a regular according to members activity, so their dividends are of the consider to be a pre-tax expenses. Dividends are usually settled on cash basis, as a payment from the store credit (common among retail consumer corporative) and shares in the company (either newly-created shares or existing share brought in the market ).
Further, many public company offer dividend reinvestment plan, which automatically, use the cash dividend to purchase additional share for the shareholders. The word dividend comes from the Latin word “dividendum” meaning the thing which is to divided among all these various objectives are maximum profit, survival, maximizing returns to shareholders which are form of dividend payment.
However, in order to achieve these objectives, decisions have to be made by the enterprises. In our business organization, there are three broad decision; financing decision, investment decision and dividend decision.
Investment decision and dividend decision, these decisions must be coordinates such that the overall objectives of the enterprises are maximized. Therefore, the subject of concern in this project will be dividend decision and the maximization of the enterprises returns to shareholders. It is assumed that invest cash in an enterprises for the same reason that any other investment decision is made, in the hope that any result of this investment, he will be able to receive more than the initial among investors, the shareholders look to the enterprises to generate cash for which he can justify his investment.
The most obvious way in which cash will be released to the shareholders, in order to justify his investment so a high dividend payout will reduce the amount of earning to be retained in the enterprise and vice-versa. As said earlier, it is from profit eared that dividend are paid to shareholders and not out of capital of the company. So in case where there are no profits, dividend cannot be paid according to Pandey, dividend paid to shareholders represent a distribution of earning that cannot be profitably reinvested by the company.
A stock dividend represents a distribution of shareholders in lied of or in addition into cash dividend or existing shareholders while a stock split is a method to increase the number of outstanding shares through a proportional reduction in the value of the share.
In general, dividends are a primary reason of investing or being of the share of enterprise although, some shares may be interested in capital gain resulting if the shares are sold at a price not higher than the cost.
- STATEMENT OF PROBLEM
In view of the inability of the Nigeria economy, many enterprise have witnessed favorable and unfavorable economic and financial conditions and this had a lot of influence on their ability to achieve the predetermine objectives. The ability of these enterprises to acquire profit as well as wealth including some other related factors will have a lot of influence in the decision of the present and potential shareholder of the enterprises and this will define the growth rate of the enterprise.
On this route, both present and potential shareholders of the enterprises will be mostly willing to subscribe to the enterprises if they are expecting a higher dividend from those enterprises and their rate of subscription will affect the ability of the enterprise to withstand the ever dynamic economy of the country and the ability of the enterprise to survive within the content of constraints imposed on it by the economy and this will also determines the ability of the enterprises to growth and survive autonomously which is also one of the various objectives of an enterprise in the world generally, these is an increasing tendency of shareholding in enterpriser because of its benefit, especially as it source of income. In Nigeria enterprises promotion decree of 1972 and 1977, where by some foreign companies were order to transfer some of their shares to Nigerians. This has made boards of directors of enterprise to think of ways of formulating dividend policy that will maximize their shareholders wealth and at the same time, having enough of earning ploughed back in the enterprise.
Dividend policy determines the division of earning between payment of shareholders and re-investment of the enterprises. The amount set aside by an enterprise is known as retained earnings. It is one of most significant.
- OBJECTIVES OF THE STUDY
The objective of the study is as follow:
- To examine how dividend policies affect market share values in Nigerian companies.
- To highlight the extent in which diversion of dividend policies on market shares affect companies in Nigeria.
- To know the challenges faced by the companies in planning the policies.
- RESEARCH QUESTIONS
- To what extent do dividend policies affect market value in Nigerian companies?
- To what extent is diversion of dividend policies on market shares affect companies in Nigeria?
- To what extent is the challenges faced by the companies in planning the policies?
- RESEARCH HYPOTHESIS
Hypothesis One
Hi: There is significant relationship between dividend policies and market share value in Nigeria companies.
H0: There is no significant relationship between dividend policies and market share value in Nigeria companies.
Hypothesis Two
Hi: There is significant relationship between diversions of dividend policies on market share companies in Nigeria.
H0: There is no significant relationship between diversions of dividend policies on market share companies in Nigeria.
Hypothesis Three
Hi: There is significant relationship between challenges faced by the companies and planning the policies.
H0: There is no significant relationship between challenges faced by the companies and planning the policies.
- SIGNIFICANCE OF THE STUDY
The main purpose or significance of this research involves the principle of factor influencing the dividend policy of market value of share on the basis of looking into are of increasing dividend and utilizing retained earning with a view of putting it into best use financing the growth of the company. The knowledge of dividend policy in financial planning of an enterprise will be increased and a recommendation where necessary will be made to the company. The study of the impact of dividend policy will be useful especially in this present day of privatization and commercialization of most of government parastatal. It is also my belief that this project will go along to help potential shareholders on the benefit of shareholdings and as well as existing ones in making judicious decision and for those who may want to know more about dividend policy such as newly planned enterprises.
The study would also be of great assistance for scholars who may want to carry over research to the effects of dividend policy of many enterprises; it is also my small contribution in the area of dividend policy in Nigeria Company, considering that not much work has been done by Nigerians investment.
- SCOPE AND LIMITATION OF THE STUDY
The scope of the study will cover only Nigeria companies however, this is not to say that all companies will be studied but only one company will be used as a case study. This is due to the constraint of time and money and it will be for a period of five years, 2002 to 2012.
The major limiting factor in this research work is the inadequate of materials on the issue of dividend policy on market value of share. Another limiting factor will be time constraints; there is limited time for the researcher to carry out proper research work on this study.
Inability to visit all or some known company is another limiting factor, hence only one company will be visited but effective effort will be made sure that these will be true representative as they will be chosen at random other factor, which might limit the study, is financial constraints. The researcher will try as much to guide against all this shortcomings through the maximization of resources so that it will help the reader and any one that might come across this project to have adequate interpretation of the result.
- DEFINITION OF TERMS
Assets: An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company’s balance sheet, and they are bought or created to increase the value of a firm or benefit the firm’s operations.
Capital: Capital refers to any financial resources or assets owned by a business that are useful in furthering development and generating income.
Dividend: A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.
Dividend policy: Dividend policy is the set of guidelines a company uses to decide how much of its earnings it will pay out to shareholders.
Investments: In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.
Retained earnings: Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders’ equity on the balance sheet.
Shareholders: A shareholder or stockholder is an individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation.
Stock price: A share price is the price of a single share of a number of saleable stocks of a company, derivative or other financial asset. In layman’s terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for.
Tax: A tax (from the Latin taxo) is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, or evasion of or resistance to taxation, is punishable by law.
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