This study uses the confirmatory specification approach to develop a parsimonious multiple regression model for the purpose of explaining and
predicting the dividend behaviour of a cross-section of 53 firms in Nigeria for the period 1993 to 2002. The model employs current earnings, previous dividends, cash flow, investment and net current assets as explanatory variables and growth, firm size and industry classification as non metric variables in order to explain and predict two dividend policy factors dividend payment and dividend changes.
In particular, the study uses the five explanatory and three dummy variables in order to determine their effect on a firms decision to pay or
vary dividend. The study hypothesises a significant relationship between the five predictor and three dummy variables and the two dividend policy
factors.
The study reveals that the five explanatory variables have significant aggregate impact on the two dividend policy factors. This result provides
evidence on the utility of the model in explaining and predicting the dividend behaviour of corporate firms in Nigeria.
The study also establishes a significant positive relationship between current earnings as well as cash flow and the two dividend policy factors.
However, the results reveal that previous dividend is only poorly, investment is found to be negatively related to dividend payment
but not significantly related to dividend changes. In both the dividend payment and dividend change model, the net current assets variable is not
found to be significant.
The tests find growth to play a significant role in dividend policy.
Firm size however does not play any significant role. In addition, the tests find only modest support for industry related dividend policy effect.
The short-term characteristics of most of the variables in the study imply that they can be manipulated to suit the interest of the major stakeholders of a firm. The findings of the study clearly demonstrate the utility of the model in explaining and predicting dividend payment as well
as dividend changes by existing and potential shareholders of corporate firms. The findings also demonstrate the utility of the model in monitoring
compliance with the insolvency rule and the possibility of formulating and enforcing accounting standard on dividend.
On the basis of the findings and policy implications of the study it has been recommended that board of directors of corporate firms in Nigeria
should utilize the variables used in this study for the purpose of establishing dividend policy that will attract the clientele of investors that exist in
Nigeria. The study also recommends the use of the model develo ency rule by firms' creditors. Furthermore, the study recommends
that government should reduce capital gains tax in order to encourage both growth and matured firms to retain some portion of their earnings for the purpose of financing their investment opportunities. On the part of the accounting professional bodies in Nigeria, the study recommends that they should as a matter of necessity initiate the process of setting up a standard on dividend. Finally, the present study recognises the possibility of omitting potential dividend policy explanatory variables such as operating and financial leverage, nature and number of shareholders and attributable earnings. It therefore calls for caution in the extrapolation of the Nigeria.
