Dividend Policy and Shareholders Wealth; A case of Nigerian Deposit Money Banks

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue IV, April 2021 | ISSN 2454–6186

Dividend Policy and Shareholders Wealth; A case of Nigerian Deposit Money Banks

Adam Muhammad Saifullahi, Aminu Kado Kurfi, Jibrin Ramalan
Department of Business Administration and Entrepreneurship, Bayero University, Kano, Nigeria

Abstract
The study tempts to explain the effect of dividend policy on shareholders’ wealth of Nigerian deposit money banks. The main objective of this identify the effect of dividend of policy on shareholders; wealth. The study used secondary as method of data collection, the date was collected from annual report of deposit money banks listed on Nigerian stock exchange for the period of 10 years. Praeson correlation and regression analysis were used to explain the outcome of the study. The study identify that has both positive and negative effect on shareholders’ wealth of Nigerian deposit money banks.

INTRODUCTION

1.1 Background to the Study

Prior to directive by the Central bank of Nigeria (CBN), to Deposit Money Banks (DMB), not to pay dividend on its shares until all its expenses have been completely written off, saying the decision is a disincentive to investors. Most banks adopted an aggressive dividend policy, partly to shore up their share price and secondly to splash cash to shareholders. Consequently, banks resorted to external funding sources to support their balance sheet, as against internal capital consolidation in the form of retained earnings. In a bid to further comply with the Basel ac-cords, the CBN in October 2014 issued a directive aimed at preventing a systemic failure and effectively pushing banks to enhance their capital buffers. This was in form of restricting deposit money banks (DMBs) and discount houses (DHs) with low capital base and high non-performing loans (NPLs) from paying out dividend. This order ensured banks provided adequate capital buffers and prevented them from paying out cash dividend out of their reserves. On January 31, 2018, the CBN added an-other paragraph to its existing directive on dividend policy, allowing banks who maintained capital adequacy ratio (CAR) of at least 3% above

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