# EFFECTS OF DIVIDENDS ON THE PRICE OF ORDINARY SHARES IN SOME QUOTED COMPANIES

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## EFFECTS OF DIVIDENDS ON THE PRICE OF ORDINARY SHARES IN SOME QUOTED COMPANIES

DIVIDENDS’ IMPACTS ON THE PRICE OF ORDINARY SHARE IN SOME QUOTED COMPANIES, IN ABSTRACT
In an effort to determine the study’s goals, the influence of dividends on the price of common shares is intended to establish and explain this relationship.

With the information gathered from the secondary data, two study hypotheses were developed and put to the test using a statistical technique called simple regression analysis. The outcome of the regression analysis, yp=a+bx = 1,68/ +0.14x, shows that the number of shares dividend per share has increased.

The distance in variation of the variables was demonstrated by the coefficient of determination (r2) of 99%. The computed value of 10.85 was finally discovered to be more than the crucial t-tab of 3.18 at n-2 = 5-2 = 3 degree of freedom.

The coefficient of correlation (r) of 84% indicates that there is a positive relationship between the level of share price and dividend per share. We therefore recommend that we need to ensure that as much dividends would not be paid detrimental to a firm’s investment programmes and should be paid to investors.

The formulated hypothesis Ho: which states that there is a positive and significant relationship between the price of ordinary shares and dividend per share is accepted and H1 which states that dividends declared by listed firms have a significant effect on the price of their ordinary shares is rejected.

THE IMPACT OF DIVIDENDS ON THE PRICE OF ORDINARY SHARE IN SOME QUOTED COMPANIES, CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Financial analysts have given the impact of dividends on the value of ordinary shares a thorough analysis in the literature. In general, it was impossible to disregard or understand a company’s dividend policy while assessing its stock.

It (dividend policy) basically refers to the management’s decision regarding the percentage of earnings to be returned as a source of internal financing and the amount shareholders should prudently be compensated for their investments while taking into account the financial needs of the company.

Since dividend policy has an impact on a company’s entire financial management, management must exercise a high level of discretion while defining a distribution pattern for their organisations.

Because the compensation for shareholders’ investment may take the form of a financial package, other incentives like script issuance, bond issues, etc., or even both, a sensible board of directors will determine whether it is appropriate to design a dividend policy that can be easily implemented.

Empirical research has thus far shown that organisations within the same industry as well as across industries are quite curious about dividend decisions.

While some overly competitive management will set their dividend returns on a very high plateau before realising that it puts the company in danger, others will adopt a fairly flexible reward policy that includes both cash and incentives each year.

Whichever policy is followed, some theories believe that it will affect the value of the company. Others, however, hold the opinion that, given the firm’s investment strategy and risk profile,

the dividend policy adopted by a company is irrelevant to both the value of its shares and the wealth of its shareholders. This controversy has caught the attention of eminent financial analysts, and this topic is what makes up the study’s study area.

STATEMENT OF THE PROBLEM
The impact of a company’s dividend policy on the price of its shares is significant for investors planning portfolios as well as economists trying to understand and assess how the capital markets function. This is true not only for corporate financial officials who most likely put the policy in place.

Studies done on the subject, though, have not yet produced a consensus. For instance, Watt (1973) claimed, using annual data, that the information content of dividends can only be minimal and might not have an impact on the pricing of common shares.

In contrast, Pettit (1972) and Lauub (1976) who used quarterly data stated that dividend announcements carry information beyond that already reflected in current earning statements and may therefore alter share prices.

What drew our attention to this study was the crucial issue of the lack of a precise (empirical) explanation of how dividends affect the price of common shares:

1.3.1 OBJECTIVES OF THE STUDY
Studies on the types of dividend policies adopted by Nigerian corporations have been done there. These studies frequently seem to say very little or nothing about how dividends affect the price of common stocks.

Options varied even in developed nations where studies on the subject have been done, and those studies have used data from Nigeria.

Many of the models cited in the literature, in the opinion of Odite (1977), are more applicable to advanced economies. Therefore, the majority of what is available here might not be entirely applicable in Nigeria. As a result, the following is the study’s specific goal:

(1) To determine and explain how dividends affect the price of common shares when other goals are

(3) To determine whether an increase in dividends announced would result in a rise in the price of common shares.

(4) To determine whether shareholders ever give the distribution of their earnings any thought.

1.4 RESEARCH QUESTIONS
Several issues came up as we tried to figure out how dividends affected the price of ordinary shares.

(1) Do dividends have any effect on the price of common shares?

(3) Will the price of common shares rise if more dividends are declared?

(4) Does it ever matter to shareholders how their earnings were distributed?

In the course of this study, answers to these and many other questions will be provided.

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