PRODUCTIVITY IMPACT OF DIVIDEND ON SHAREHOLDERS
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ABSTRACT
The impact of a firm’s dividend policy on the current price of its shares is a matter of concern, not only to the corporate officials who must set the policy, but to investors planning portfolios and to economists seeking to understand and appraise the functioning of the capital markets. To carry out this research work the researcher used a population size of 200, 133 questionnaires were made and distributed to selected respondents, when the data collected from the questionnaires were analysed and presented in tables, the researcher intend to respond to the following questions; Do companies with generous distribution policies consistently sell at a premium over those with -niggardly payouts? Is the reverse ever true? If so, under what conditions? Is there an optimum payout ratio or range of ratios that maximizes the current worth of the shares? Finally recommendations were suggested to address the measures needed in improving shareholders productivity in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1. Background of the study
The dividend of shareholders and its impact on productivity has been severally been called into question. Most school of thoughts has it that dividend of shareholders does not have a significant impact on their productivity level while other school of thoughts are of the contrary opinion. Dividend overtime has had a leading role to play in corporate organizations and more especially in the wellbeing of shareholders. Dividend off course helps to is increase or improve the revenue base of shareholders, corporate monetary managers make different financial decisions and dividend policy decision is cardinal amongst them (Baker & Powell 1999). Dividend decision has great impact on firm financial decision and stock price and most importantly on its shareholders; increase in dividends would improve the revenue base of its shareholders while a decrease in dividend would be on the contrary as their financial base would be negatively affected. Simians (1995) argue that the productivity of shareholders is largely influenced by the organization’s dividend policy. It is an approach which is used to distribute the profit back to its shareholders. If a company is in a growing stage, it may decide it will be reinvested in company’s future projects rather than distributing the profit to shareholders .If a company decides to pay dividend, it must decide how much and at what rate dividend should be paid. Dividend policy plays a frontline role to play in terms of the commitment and corporate productivity of its shareholders. If a company pays handsome return to its shareholders it will help to improve the productivity of its shareholders thereby ensuring corporate growth of the company and vice versa. So we can say dividend policy have a strong impact on growth and productivity. Dividend policy is guidelines for financial managers, how to pay dividend to the shareholders either through cash dividend or through fixed percentage dividend. The primary objective of any organization is to maximize the wealth of shareholders. Financial manager’s aim is to take a decision in such a way that shareholders receive the high contribution of dividend which leads to increase the price of share. Because market price is an indicator of profitability, progress and productivity of both the shareholders and company by extension, however, it is an unresolved issue whether the dividend policy has impact on its shareholders wealth.
Dividend policy has the significant importance in the financial decisions of the corporation. Dividend policy is cause to increase the wealth of shareholders, finance manager make different financial decisions and dividend policy decision is one of them (Baker &Powell 1999). . Dividend decision has great impact on firm financial decision and stock price. The stock price increases when there is smooth payment of dividend exist. Investors do not prefer to purchase the shares of such type of companies which cannot make payment regularly and of which the dividend decisions have variability because of the risk of loss associated with these variations. Simians (1995) argue that shareholders’ wealth is largely influenced by the organization’s dividend policy. It is an approach which is used to distribute the profit back to its shareholders. If a company is in a growing stage, it may decide it will be reinvested in company’s future projects rather than distributing the profit to shareholders .If a company decides to pay dividend, it must decide how much and at what rate dividend should be paid. Dividend policy plays a vital role at company in financial markets and it directly affects the stock price of the company. If a company pays handsome return to its shareholders it will attract to the new investors to invest their money in the company and vice versa. So we can say dividend policy have a strong impact on its share price. Dividend policy is guidelines for financial managers, how to pay dividend to the shareholders either through cash dividend or through fixed percentage dividend.
Information content or signaling says that investors regard dividend changes as signals of management earning potentials. The model was developed by Ezra (1983). It suggests that dividend announcements convey information to investors regarding the firm’s value prospects (Ezra, 1983). He said many earlier studies had shown that stock prices tend to increase when an increase in dividend is announced but tend to decrease when a decrease or omission is announced. Therefore, Ezra pointed out that, this is likely due to when investors have complete information about the firm, they will look for other information that may provide a clue as to the firm’s future prospects and also managers have more information than investors about the firm and such information may inform their dividend decision. It could be seen, therefore, that when mangers lack confidence in the firm’s ability to generate cash flows in the future, they may keep dividends constant or possibly even reduce the amount of dividends payout. Conversely, managers that have access to information that indicates very good future prospects for the firm are more likely to increase dividends (Ezra, 1963).
Hence, the purpose of this study is to perform a cross-sectional study to find the situations in Nigeria which these hypotheses apply and also determine how stock prices react to such dividend and earnings report as indicated by investors’ ratio values with bias to Dangote Cement Company stock.
1.2 STATEMENT OF THE GENERAL PROBLEM
The problem of productivity in corporate organizations especially when it comes to employees has overtime been a puzzle. This is as a result of the general problem of less productivity on the part of employees and this has negatively affected the corporate growth of companies. Overtime in Nigeria, shareholders dividend has witnessed a negative trend of continual retrogression due to the harsh economic situation of Nigeria. A major offshoot of this malady has led to shareholders not giving their best as a result of lack of financial motivation. This has negatively further affected the economic development of Nigeria.
- OBJECTIVES OF THE STUDY
The following would be the aims and objectives of venturing into this study.
- To examine the impact of dividends on shareholders productivity.
- To know the impact of prompt payment of dividend on the growth of an organization.
- To examine the relationship between shareholders productivity and dividends.
- To recommend ways of improving shareholders productivity in Nigeria
1.4 RESEARCH QUESTIONS
The following would guide us as our research questions
- Is there any impact of dividends on shareholders productivity?
- Is there any impact of prompt payment of dividend on the growth of an organization?
- Is there any significant relationship between shareholders productivity and dividends?
- Can shareholders productivity be improved through payment of dividends?
1.5 RESEARCH HYPOTHESES
H0: Dividends do not significantly influence shareholders productivity.
H1: Dividends significantly influences shareholders productivity.
H0: there is no significant relationship between shareholders productivity and dividends
H2: there is a significant relationship between shareholders productivity and dividends
1.6 SIGNIFICANCE OF THE STUDY
This study would be of immense benefit to corporate organizations in terms of the pros and cons of dividend policy and how it relates or affects shareholders. This research will be particularly significant to the following groups: investors and potential investors as the major beneficiaries of an enhanced value created firm as indicated by the share prices are investors and potential investors. Their contribution, in monetary terms in the promotion, incorporation, continual existence to the growth of the firm must be rewarded with a premium above their risk free rate, thus, acting as a compensation for time and risk inherent in these firms. Therefore, this research will contribute, along with other similar literatures available in this area of finance, to enhancing the maximization of investors and potential investors’ objectives as concern capital gains from their investment. To academia essentially, this research intends to contribute significantly to the volume of literature available in this area of finance. In academics, the unknown is never exhausted, as the list of what we do not know could go on forever. Therefore, as a contribution to this area, hints, recommendations about dividends, earnings and stock prices will be examined. To management in large firms, there is a divorce between management and ownership. The decision taking authority in a company lies in the hands of managers. Shareholders as owners of the company are the principals and managers are their agents. Thus, there is principal-agent relationship between shareholders and managers therefore managers should and must act in the best interest of shareholders as consistent with shareholders’ wealth maximization objectives of the firm. Therefore, this research will enable management to understand what must be done in order to act in the best interest of shareholders in choosing dividend policies that will maximize shareholders’ value.
1.7 SCOPE AND LIMITATION OF THE STUDY
This work is restricted to the productivity impact of dividends on shareholders with Dangote cement plant Lagos serving as a case study.
It also has some limitations that may impede the research work. These include:
FINANCE: this may impede or cause a bridge in this research work because the researcher may not have enough money to cover the required area.
TIME: the time given to researcher may be too short there he could not cover the areas he was supposed to.
ATTITUDE: the attitude of the Dangote cement company, Lagos State also was a problem because these council members are not willing to give out any information for fear of being apprehended.
1.7 DEFINITION OF TERMS
Impact: impact is defined as the action of one object coming forcibly into contact with another. Or a marked effect or influence.
Productivity: Productivity describes various measures of the efficiency of production. A productivity measure is expressed as the ratio of output to inputs used in a production process, i.e. output per unit of input. Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people’s ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable.
Dividend: could be defines as a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).
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. Shareholders may be referred to as members of a corporation. Legally, a person is not a shareholder in a corporation until his or her name and other details are entered in the register of shareholders.
1.8 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.
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