Dividend Policy and Firm Performance of Selected Commercial Banks in Nigeria (Published)
This study examines the empirical impact of dividend policy on the financial performance of listed commercial banks in Nigeria. To address the operational trade-offs between the Signaling and Agency Hypotheses, dividend policy is analyzed through a dual framework: absolute Dividend Per Share (DPS) and relative Dividend Payout Ratio (DPR). Corporate banking performance is concurrently measured via Return on Assets (ROA) for operational asset efficiency and Return on Equity (ROE) for shareholder capital returns. Methodology Research Design: Explanatory, quantitative, ex-post facto panel research design. Data Source & Scope: Secondary data extracted from audited IFRS annual financial statements of thirteen (13) purposively sampled commercial banks listed on the Nigerian Exchange Group (NGX) from 2020 to 2024.Sample Size: A balanced panel of 65 unique bank-year observations. Estimation Model: A Hausman-validated Fixed Effects (FE) panel regression framework utilizing Huber-White robust standard errors to control for unobserved bank-specific heterogeneity, heteroskedasticity, and autocorrelation. Key Empirical Findings Dividend Per Share (DPS): Exerts a positive and highly significant impact on both Return on Assets and Return on Equity. This strongly validates Signaling Theory, showing that absolute nominal cash yields are treated by the market as a reliable indicator of underlying balance-sheet resilience and profitability. Dividend Payout Ratio (DPR): Exhibits a negative and statistically significant relationship with Return on Equity, while maintaining a neutral effect on Return on Assets. This negative equity pathway supports the Agency Hypothesis in banking architectures, proving that aggressive relative payout intensities erode a bank’s internal capital base by drawing down retained earnings. Theoretical & Institutional Insights: The findings completely reject the Modigliani-Miller dividend irrelevance hypothesis under localized market conditions characterized by intense information asymmetry. Longitudinal tracking shows that tier-1 institutions (e.g., Zenith, GTCO, and UBA) manage absolute dividend signals effectively while maintaining capital buffers, whereas lower-tier institutions face severe capital preservation constraints. Policy Implications & Recommendations. The study recommends that bank board’s implement strict prudential caps on relative distribution percentages (DPR) to protect retention reserves, while pacing nominal adjustments to absolute dividends (DPS) in strict alignment with realized bottom-line profit growth. Furthermore, these empirical results offer robust justification for the Central Bank of Nigeria’s (CBN) cautious macro-prudential regulations and capital preservation mandates as the banking industry navigates its 2024–2026 recapitalization cycle.
Keywords: Bank Performance, Banking Recapitalization, Dividend Policy, Fixed Effects Model, Nigeria, Return on Assets (ROA), Return on Equity (ROE), signaling theory