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Effect of Dividend Per Share on the Market Value of Listed Companies in Nigeria

Abstract

Dividend per share is an important dividend policy indicator that represents the amount of dividend distributed to shareholders for each ordinary share held in a company. It provides investors with information about the company's ability and willingness to distribute earnings and may influence investment decisions, shareholder expectations, and market valuation. Market value represents the value assigned to a company by investors based on its current and expected future financial performance, profitability, risk, growth opportunities, dividend prospects, and other relevant information available in the capital market. A consistently increasing dividend per share may signal strong earnings capacity, financial stability, and management confidence in future cash flows, potentially increasing investor demand for the company's shares. Conversely, declining or unstable dividends may create uncertainty regarding the company's financial condition and future prospects. In Nigeria, listed companies operate in an economic environment characterized by inflation, exchange rate volatility, high interest rates, changing investor expectations, economic uncertainty, and fluctuations in corporate earnings. These conditions can influence companies' dividend decisions and investors' valuation of dividend-paying firms. Effective dividend policy is therefore important for balancing shareholder returns with the need to retain earnings for business expansion and investment. Regulatory institutions such as the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), and the Nigerian Exchange Group (NGX) promote transparent financial reporting and sound corporate governance practices that enable investors to assess dividend decisions and corporate performance. Despite these regulatory efforts, differences exist in dividend policies and market valuations among listed companies, raising questions about whether dividend per share significantly influences market value. Although previous studies have examined dividend policy, dividend payout, and firm value, empirical evidence regarding the effect of dividend per share on the market value of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of dividend per share on the market value of listed companies in Nigeria. The study is anchored on Dividend Relevance Theory, Bird-in-the-Hand Theory, and Signaling Theory. Dividend Relevance Theory suggests that dividend decisions can influence the value of a company because investors may place importance on the certainty and timing of dividend income. Bird-in-the-Hand Theory proposes that investors may prefer current and relatively certain dividend income over uncertain future capital gains, making companies with stronger dividend payments potentially more attractive to investors. Signaling Theory suggests that dividend per share may communicate information about management's expectations concerning future earnings and cash flows, with increases in dividends potentially providing a positive signal to the market. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between dividend per share and the market value of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to chief financial officers, finance managers, accountants, financial controllers, investment analysts, portfolio managers, fund managers, stockbrokers, institutional investors, internal auditors, external auditors, and other professionals involved in financial management and investment decisions within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Dividend per share will be measured using dividend paid per ordinary share, dividend consistency, dividend growth, dividend distribution capacity, and management's commitment to shareholder returns, while market value will be measured using market capitalization, share price, Tobin's Q, price-to-book ratio, and overall market valuation. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding dividend per share and market value. Structural Equation Modeling (SEM) will be employed to examine the effect of dividend per share on market value. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that dividend per share will have a significant positive effect on the market value of listed companies in Nigeria. Higher and consistently maintained dividend per share is expected to enhance investor confidence by providing shareholders with tangible returns on their investments and signaling strong earnings and cash-flow prospects. Companies that consistently increase or maintain dividends may be perceived as financially stable and capable of generating sufficient earnings to support shareholder distributions. Such perceptions may increase investor demand for their shares, resulting in higher share prices and market valuation. Dividend payments may also attract income-oriented investors and reduce uncertainty regarding the realization of returns from equity investments. However, excessively high dividend payments may reduce retained earnings available for reinvestment in profitable projects, expansion, technological development, and working capital. Consequently, the effect of dividend per share on market value may depend on the company's profitability, investment opportunities, cash-flow position, and ability to sustain its dividend policy. A sustainable dividend policy that balances current shareholder returns with long-term investment requirements is therefore expected to contribute significantly to market value and shareholder wealth among listed companies in Nigeria. This study is expected to make significant theoretical and empirical contributions to the literature on dividend policy, corporate finance, financial accounting, and capital market valuation by providing comprehensive evidence on the relationship between dividend per share and market value of listed companies in Nigeria. Unlike previous studies that broadly examined dividend policy or dividend payout ratios, this research specifically evaluates dividend per share as a determinant of market value using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for listed companies, financial managers, accountants, investment analysts, portfolio managers, investors, stockbrokers, auditors, the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), the Nigerian Exchange Group (NGX), professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of dividend decisions in corporate valuation. The study will also provide evidence-based recommendations for developing sustainable dividend policies, improving earnings management, strengthening cash-flow planning, balancing dividend payments with investment requirements, enhancing investor confidence, and promoting sustainable market value and shareholder wealth among listed companies in Nigeria.

Keywords: Dividend per share, market value, listed companies, dividend policy, shareholder wealth, dividend relevance, investor confidence, share price, corporate valuation, Structural Equation Modeling (SEM), Nigeria.