THE IMPACT OF DIVIDEND POLICY AND EARNINGS ON STOCK PRICES OF NIGERIA BANKS

THE IMPACT OF DIVIDEND POLICY AND EARNINGS ON STOCK PRICES OF NIGERIA BANKS

ABSTRACT

This study examined the impact of dividend yield on stock prices of Nigerian banks; the impact of earnings yield on stock prices of Nigeria banks and the impact of payout ratio on stock prices of Nigeria banks. The study adopted the ex-post-facto research design and panel data covering 5-year period 2006-2010 were collated from annual reports of banks and the Nigeria Stock Exchange daily official list. The Ordinary Least Square Regression Model was used to estimate the relationship between dividend yield, earnings yield, payout ratio and stock prices. Average of daily stock prices was adopted as the dependent variable, while the independent variables included dividend yield (DY), earnings yield (EY) and payout ratio (POR). The result emanating from this study revealed that dividend yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient of yield = -3.365; p-value = 0.035). Earnings yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient of Eyield = -0.331; p-value = 0.048) and dividend payout ratio had negative and non-significant impact on commercial banks’ stock prices in Nigeria (coefficient of Por = -1.411; p-value = 0.269). The study thus, revealed that the dividend yield, earnings yield and payout ratio are not factors that influences stock prices rather the bank size was found to have positive and significant impact on stock prices. The study therefore recommends among others that managers should act in the best interest of investor as to reduce the agency problem, thus complete information about the dividend polices of the firm should be provided.