Acta Universitatis Danubius. Œconomica, Vol 14, No 5 (2018)

Effect of Dividend and Earnings on Stock Price Movement in Nigerian Banking Sector

Obalade Alamu Adefemi, Anthony Olugbenga Adaramola, Mary Oluwayemisi Akosile, Grace Oluwafunmilayo Obalade

Abstract


The study assessed the effect of dividend and earnings on stock price behaviour in Nigerian banking sector.The Pooled Least Square Method, Fixed Effect Model, Random Effect Model and Hausman Test were employed as the estimation techniques withrandom effects estimator selected as the most efficient to use.The sample period spans from 2000 to 2014 and comprises of annualized stock prices, dividend and earnings per share of15 quoted banking firms, from Nigerian stock exchange (NSE). The study found that: current dividend has a significant positive effect on the stock prices of quoted deposit money banks; while earnings and previous dividend payment have insignificant effect on banks’ stock prices in Nigeria. The study concluded that: regular dividend payment is a significant factor that enhances shareholders wealth in Nigerian banking firms,hence, establishing the truism of the dividend relevance school; dividend payment has information content and send positive signal to the market which again drives stock prices, however, insignificant. Based on the findings of the study, it was recommended that:Banks management should be favourably disposed to payment of dividend to their shareholders because of its impact on maximization of wealth which is believed to be the most important objective of the firm; Management of Banks should also ensure operational efficiency so as to earn reasonable profits part of which goes to the shareholders in the form of dividend. Earnings should be deployed in such a way as to maximise the wealth of the shareholders


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