Capital Structure and Dividend Policy of Listed Conglomerate Companies in Nigeria: A Panel Data Analysis
- November 24, 2020
- Posted by: RSIS Team
- Categories: Accounting, IJRSI
International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue X, October 2020 | ISSN 2321–2705
Ahmed Ishaku ACA, Hirhyel Ibrahim Abba, Jamila Muktar & Habib Abdulkarim CNA
Department of accounting, Gombe state university
ABSTRACT
This study examined the relationship between capital structure and dividend policy of listed conglomerate companies in Nigeria. An ex-post facto research design was used because secondary data were extracted from annual report and account of the companies for the period of eight years (2012 – 2019), robust GLS regression analysis was used to analyze the data. The findings revealed that debt to equity ratio has a negative and significant relationship with dividend payout ratio, debt to asset ratio has a negative and significant effect on dividend payout ratio of listed conglomerate companies in Nigeria. Firm size, and age have positive and significant relationship with dividend payout ratio. However, Return on assets (ROA) has a positive but non-significant relationship with dividend payout ratio. The study conclude that debt serve as a monitoring mechanism to the absentee owners, hence its influence on the capital structure of business organization cannot be underestimated because of tax advantages. It is therefore recommended that management should only accept debt covenant that will enable them to pay dividend to shareholders.
Key words: Capital structure, Dividend payout ratio, Panel data analysis.
1.0 INTRODUCTION
The influence of debt in financing modern business organization cannot be underestimated because of its tax advantages, however, capital structure decisions influences other corporate decisions in an attempt to create value for all stakeholders, and hence an organizations may suffer increased costs and decreased financial performance if they do not adopt suitable capital structures. This decision is important not only because of the need to maximize shareholders wealth, but also important because of the need to operate in the foreseeable future.
Dividend policy is also considered to be one of the most important financial decisions that corporate managers encounter because of its potential implications on share prices (signaling effect), the financing of internal growth and the equity base through retentions together with its gearing and leverage (Ishaku, 2015 and Andiema&Atieno, 2016). Besides, in supports of the bird-in-hand theory of Gordon (1963) investors’ desire high current dividends to meet their socioeconomic needs leading to have a high interest on the organizational dividend policy
