DOWNLOAD THE COMPLETE PROJECT

2 Users found this project useful

Effect of Dividend Yield on the Market Value of Listed Companies in Nigeria

Abstract

Dividend yield is an important market-based financial indicator that reflects the relationship between the dividend paid by a company and the market price of its shares. It provides investors with an indication of the cash return they may receive relative to the prevailing market price of a company's stock and can influence investors' assessment of the attractiveness, risk, and value of an investment. Market value represents the value assigned to a company by market participants based on its financial performance, future growth prospects, risk profile, expected returns, and other relevant information. In Nigeria, listed companies operate in an economic environment characterized by inflation, exchange rate volatility, changing interest rates, economic uncertainty, fluctuating consumer purchasing power, and varying corporate profitability. These factors can influence dividend payments, share prices, investor expectations, and consequently the dividend yield and market value of listed companies. Dividend yield may serve as an important signal to investors because changes in the ratio may indicate differences in corporate profitability, dividend policy, growth opportunities, or perceived investment risk. Regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) promote transparency, corporate governance, and financial reporting practices that enable investors to evaluate corporate performance and make informed investment decisions. Despite these regulatory efforts, listed companies differ considerably in their dividend policies and market valuations, creating a need to examine whether dividend yield significantly influences the market value of companies in Nigeria. Although previous studies have examined dividend policy, dividend payout, dividend stability, and firm value, empirical evidence regarding the effect of dividend yield on the market value of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of dividend yield on the market value of listed companies in Nigeria. The study is anchored on Dividend Relevance Theory, Signaling Theory, and Bird-in-the-Hand Theory. Dividend Relevance Theory suggests that dividend decisions can influence the value of a company because investors consider dividend payments when assessing the attractiveness of corporate securities. Signaling Theory explains that dividend yield can convey information about management's expectations concerning current and future earnings and cash flows, thereby influencing investors' valuation of the company. Bird-in-the-Hand Theory suggests that investors may prefer relatively certain current dividend income over uncertain future capital gains, potentially increasing the attractiveness and market value of companies offering favourable dividend yields. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between dividend yield 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, stockbrokers, fund managers, institutional investors, 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 yield will be measured using dividend per share relative to market price, consistency of dividend yield, adequacy of dividend returns, attractiveness of dividend yield, and investors' assessment of dividend income, while market value will be measured using market capitalization, Tobin's Q, price-to-book ratio, share price performance, and overall market valuation. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding dividend yield and market value. Structural Equation Modeling (SEM) will be employed to examine the effect of dividend yield 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 yield will have a significant positive effect on the market value of listed companies in Nigeria. A favourable dividend yield is expected to increase the attractiveness of a company's shares by providing investors with a relatively visible source of current income. Companies capable of sustaining attractive dividend yields may signal strong profitability, adequate cash flows, financial stability, and management confidence in future earnings. Such signals may increase investor demand for the company's shares, support share prices, and contribute to higher market valuation. Dividend yield may also reduce investors' uncertainty regarding expected returns and attract income-oriented and long-term investors. However, an unusually high dividend yield may sometimes result from a declining share price rather than strong dividend performance and could therefore signal financial distress, weak growth prospects, or an unsustainable dividend policy. Consequently, the effect of dividend yield on market value may depend on whether the yield reflects sustainable earnings and cash flows or arises from declining market prices. The study therefore expects that a sustainable and favourable dividend yield will contribute positively to the market value of listed companies in Nigeria. This study is expected to make significant theoretical and empirical contributions to the literature on dividend policy, corporate finance, accounting, and capital market valuation by providing comprehensive evidence on the relationship between dividend yield and the market value of listed companies in Nigeria. Unlike previous studies that broadly examined dividend policy, dividend payout ratio, or dividend stability, this research specifically evaluates dividend yield as a determinant of market value using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), listed companies, investors, financial analysts, professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of dividend yield in corporate valuation and investment decisions. The study will also provide evidence-based recommendations for developing sustainable dividend policies, improving investor communication, aligning dividend payments with earnings and cash flows, strengthening corporate financial planning, and promoting sustainable market value and shareholder wealth among listed companies in Nigeria.

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