FINANCIAL FLEXIBILITY AND DIVIDEND PAYOUT: EVIDENCE FROM NIGERIAN FINANCIAL SECTOR

Rihanat Idowu ABDULKADIR, Abdulaziz Adewuyi ABDURRAHEEM, Akeem Adetunji SIYANBOLA

Abstract

Recent decline in the average payout ratios and suspected decline in financial flexibility of firms listed in the financial service sector of the Nigerian Stock Exchange stimulates the interest to conduct this study. The study examines whether dividend payment decisions can be explained by the financial flexibility of the sampled firms. To achieve this, the study obtained data from the published financial statements of the firms. Binomial logistic regression and panel linear regression were employed to investigate how financial flexibility explains “decision to pay or not to pay” and “amount of dividends paid” respectively. Findings indicate that financial flexibility (measured by cashflow) influences firms’ decision “to pay” or “not to pay” as well as the amount of dividends paid. Findings indicate further that profitability and size are also important determinants of the amount of dividend payout. The result of the study is in line with signaling theory which indicates that payment of dividend is a signal of financial health of the firm. In line with findings, the study concludes that dividend payout of firms in the financial service sector of the Nigerian Stock Exchange is strictly guided by their financial health. Thus, the study recommends that regulatory authorities should adopt policy measures that will enhance firm’s financial flexibility to strengthen their ability for the attainment of overall objective of the firm (maximization of shareholders’ wealth).

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