Dividend Clientele Hypothesis: An Empirical Test in Emerging Nigeria Financial Market

Abstract

This study tested the dividend clientele hypothesis of Modigliani and Miller using panel data of quoted manufacturing firms in Nigeria. The purpose was to investigate how dividend clientele effect relates to share prices. The estimated regression model found that changes in dividend payout ratio, retained earnings and tax explained 73.9 percent variation in stock prices of the quoted manufacturing firms. Correlation and multiple regressions were used to test the relationship between variables. Cross sectional data were sourced from financial statement and annual reports of the firms. Based on the analysis of fixed and random effect results, fixed effect was used. From the findings, the study concludes that variation in dividend payout ratio, retained earnings and income tax positively affects the stock prices of the quoted manufacturing firms. The study recommends that relevant authorities should ensure dividend policy framework that will positively affects the share prices of the quoted manufacturing firms