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The efficient and effective financial administration in corporate organization is sine quad non’ to the achievement of the organizational objective.

Dividend policy is said to be financial policy that is responsible for the determination of the market price of shares. But there are divergent views on the effect of dividend policy on the market price of shares. Dividend relevance and dividend irrelevance theories. The regression analysis performed on the secondary data collected, using market price of shares as dependent variable, dividend per share, retained earnings per share and earnings per share as independent variables, revealed that there is significant relationship between dividend policy and market price of shares. It was also revealed that dividend affect market price of share more than retained earnings. It was also concluded that the belief of the dividend irrelevance theorists is wrong in the real life situation where forces of demand and supply play a determining role. It was recommended that financial administrators study and educate the environment in the formulation of dividend policy. Hence, optimum dividend policy will be achieved which in tum increases the value of the business firm.


Chapter One: Introduction

1.1   Background of the Study

1.2   Objective of the Study

1.3   Statement of Problem

1.4   Research Questions

1.5   Research Hypotheses

l.6    Significance of the Study

1.7   Scope and Limitation of the Study

l.8    Plan of the Study

Chapter Two: Literature Review/Theoretical Framework

2.0   Introduction

2.1   Conceptual Framework

2.l.1 Argument in Favour of Retained Earnings

2.1.2 Argument in Favour of Dividend

2.2   Theoretical Framework

2.2.1 Dividend Relevance

2.2.2 Dividend Irrelevance

2.2.3 Theories based on the in Formativeness of Dividend Payout

2.2.4 Dividend Announcement and the Market Price of Shares

2.3   Types of Dividend

Chapter Three: Research Methodology

3.0   Introduction

3.1   Data Collection

3.2   Sources and Nature of Data

3.3   Analytical Techniques and Instrument

3.4   Model Specification

3.5   Model Estimation Techniques

3.6   Re-Statement of Hypothesis

3.7   Limitations and Problem Encountered in the Research Work

Chapter Four: Method of Data Analysis

4.0   Data Analysis and Interpretation

4.1   Presentations and Interpretation of Result

4.2   Major Findings and Implications

4.3   Effect of Dividend Policy on First Bank of Nigeria

Chapter Five: Summary of Findings, Recommendation and Conclusion

5.0   Summary

5.1   Findings

5.2   Recommendation

5.3   Conclusion





Efficient management of the flow of funds within a firm shows that the firm has a goal or an objective because judgment as to whether or not financial decision is efficient must be made in the light of some standard. The objectives of firms are multi­dimensional; this may range from social, to economics and to finance.

The social objective holds the view that the firm should socially responsible. This is because the firm is not operating in a vacuum but within environment, internal and external environments of the firm. These social responsibilities include the supply of quality products at low prices to the customers, tarring of roads maintenance of sound industrial relations, giving a fair deal to employees and seeking their participation in management and contribution towards the social overheads through taxes and donations. However, the social welfare maximization objective is greeted with very may criticism. The economics objective has profit maximization objective as its own objective and holds the view that sole objective of any firm should be to maximize profit.

The objective though considering better than that of social school of thought, also witness several and serious criticisms. The finance is maximizing the, wealth of the shareholders or value of the firm. The objective of wealth maximization would cause financial managers to take decisions, which balance returns and risk in such a manners as to maximize the benefits, through dividends and enhancement of share price, to the shareholders.

Dividend policy is seen to be sine-qua-non to the value of a firm subject to the position maintained in the above paragraph. The shareholders see dividends as signals of the firm’s ability to generate future income, hence, it is used in the valuation of the firm. The management of the firm is expected to choose the capital structure that will be able to give optimum return to the firm.

Hence, dividend policy “… consist of rules by which the earning are distributed between retention and dividends to shareholder,” Oloyede (2000).

The form of returns, dividends and retained earning play important role in maximizing the value of the firm. Infact, in any business organization, the issues of dividend policy cannot over – emphasized. Dividends policy of an organization are those policies that determine the amount of earning that the organization will pay as dividend versus the amount .of earning that will be retained and reinvested in the organization, Pantalone (1988).

Dividend decision of the firm is a very important area of financial management. The financial manager is faced with two conflicting interest vis-a-vis income to the shareholders in form of dividend and retention to ensure adequate growth rate. Therefore appropriate balance has to be maintained so as to satisfy the two conflicting interest.

This optimal dividend policy, which forms the main focus of dividend policy, ensure the appropriate balance between the current dividends and adequate growth, thereby maximizes the values (Market) of the firm’s share.

Miller and Modigliani (1961) opined that the effect of the company’s dividend policy on the value of its shares is a matter of considerable importance not only to the corporate managers who must set the policy but to investors planning port folio and to economists seeking to understand and appraise the functions of the capital market.

The ability to pay dividends duly and regularly is an important factor in determining the success and value of such firm. For the vest majority of common shares, the dividends record and prospects have always been the most important factor controlling investment quality and value of the stock. The success of the company is measured by its ability to pay liberal steadily increasing dividend on the shareholders investment. This is because the true and intrinsic value of any financial assets is based on the cash flows that the investor expects to receive in the futures for owning such assets. Dividends tend to be viewed both by the firms management and by the recipient shareholder as the equivalent of an interest payment of a loan to creditors, a compensation for the shareholders delaying consumption, Gordon and Williams (1962).

There have been theories on the variable that influences the market price of a share more than the other between dividend rate and retained earnings. Infact, there are conflicting theories regarding the impact of dividend decision on the market value of a given form’s share. Some theorists even opined that dividends decision does not have relationship the value of a firm.


Generally, the study will examine the effect of dividend policy on the market price of shares. The study will appraise and evaluate the effectiveness and efficiency of dividend policy in the determination of the market prices of shares using First Bank of Nigeria as a case study. The study will also appraise the role of maximizing the value of corporate organization in the aggregate economic development. Also, the research work will seek to know whether dividend policy in its context and application is the only alternative or with some adjustment that will bring the lasting solution to the problem of fluctuation in the market prices of shares.

At the end of the day, useful recommendation will be made on how the firms can improve the move on the market prices of their shares.

Having discussed the broad objective of the study, there is needed to specifically state the specific objectives of this research work. The specific objectives are as follows:

i.        To examine dividend policy as a financial administration policy.

ii.       To examine the relevance of dividend to stockholders satisfaction and market prices of shares.

iii.      To examine the effect of dividend policy on the market prices of shares.

iv.      To examine the relevance of retained earnings on the growth of the firm and the consequent effect on the market price of shares.

v.       To examine the variable that mostly influences the market prices of shares.

vi.      To examine the trend of dividend payment on the future value of the firm.

vii.     To examine the contribution of corporate business organization in the economic development.

viii.    To examine the constraints of dividend payment in practice.


The shareholders are always conscious of what returns they would get from their investments at the end of the day. At the same time companies always want to exploit the opportunity of retain earnings as a source of getting fund for the growth of the company.

The ability of the company to determine appropriate dividend policy would influence the prospective investors and even the existing shareholders to be invested in company stocks or buy additional ones. This will invariably influence the market price of the companies share at the capital market.

Thus, there is the problem of being able to strike a balance between growth of the company and satisfy the shareholders. Thus, this study will proffer solution to the following research questions.


i.        To what extent bas dividend policy influence the market share price?

ii.       How efficient is dividend policy in determining market share price.

iii.   Does the dividend policy maximize shareholders/investors interests?

iv.      Is dividend policy sufficient in determining market price of shares?

v.       To what extent has dividend policy enhances capital formation in the economy?



HI-There is significant relationship between market prices of share and dividend policy.

Ho -There is no significant relationship between market price of shares and dividend policy.


HI-Dividend policy affect market price of share more than retained earnings.

Ho -Dividend policy does not affect market price of share more than retained earnings.


HI – There is a significant relationship between dividend policy and capital formation in the economy.

Ho -There is no significant relationship between dividend policy and capital formation in the economy.


HI – Dividend policy has a significant relationship with shareholders interest.

Ho- Dividend policy has no significant relationship with shareholders interest.


From the Marco – economic perspective, it is the investors that help in capital formation, which is eventually used for possible investment and growth of the economy.

Dividend policy therefore will go a long way to influence the capital formation of the country. So the significance of this study cannot be over emphasized as it will exposes how dividend policy has encourage or otherwise the capital formation in the country and hence the economic growth.

From the micro level, one would see that as a rational being, investors/shareholders would be attracted to investment that brings about attractive returns. It is the dividend policy that determines this. So the management of dividend policy by the business managers goes a long way to attract these investors. It is the belief of this researcher therefore that results got from this study will go a long way to influence business managers in designing their dividend policy and shareholders response to share market price.


I confine myself for the purpose of this research work to the dividend policy and its effect on market price of shares as it is applied in financial administration in content context and concept.

I limit myself to the available data to be collected at relevant section of Nigerian stock exchange, security and exchange commission, first bank of Nigeria, libraries and other research institutes. Sources of information are from journals, statistical bulletins, periodicals, news abstract, annual reports of first bank of Nigeria, textbook and other government publications.

In assessing the effect of dividend policy therefore, both quantitative and qualitative approach will be employed.

I cannot, but say that the research work is faced with some limitations. The time available to carryout this research work is very inadequate. The research work of this nature normally requires much time and attention, which is very had to come by in programmes such as that of ours.

Access to some useful information for the purpose of this research project was denied due to secret management of information by Nigerian business organizations. The current data are also seemingly unfeasible in such organization due to poor management of information in Nigeria. The fund available for the purpose of this research work is not adequate for it requires a lot of money to put everything together in the cause of making research.


As chapter one has successfully dealt with the necessary introductory background of the study, chapter two will be dealing with literature review, conceptual and theoretical framework. Chapter three will deal with research methodology of the study, Chapter four will deal with data presentation and analysis. While chapter five will finally deal with the summary, concluding remark and recommendation


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