Firm Liquidity and Dividend Payments: A Panel Analysis of Financial and Real Sector Firms in Nigeria

Abstract

This study examined the relationship between firm liquidity and the dividend payments of listed companies in Nigeria on one hand, and made a comparative analysis of this relationship between the financial and real sector firms, on the other. The study employed panel least squares regression to analyze the data of 30 listed firms (15 each drawn from the financial and real sectors of the Nigerian economy). Specifically, the study examined the effect of five liquidity and funds flow variables: current ratio (CUR), profit after tax (PAT), earnings per share (EPS), sales/gross earnings (SAL) and debt-capital ratio (DCR) on the dividend payments (DPS) of the firms under study for the period 2008 – 2017. Findings from the study show that using the fixed effect model results for the financial sector firms, CUR and PAT have positive and statistically significant effects on DPS while the rest ( EPS, SAL and DCR) have negative and statistically insignificant effects on DPS. However, using the random effect model results for the real sector, the CUR has a negative but statistically insignificant effect on the DPS while PAT and SAL have positive and statistically significant effects on DPS. EPS has a positive but statistically insignificant effect on DPS while DCR has a negative but statistically insignificant effect on the DPS. It is concluded that liquidity has significant effect on dividend payment of both the financial and real sector of the Nigerian economy. Furthermore, a comparative analysis of the effect of liquidity on dividend payment of financial and real sector firms shows that though liquidity affects the dividend policy of both the financial and real sector firms in Nigeria, the effects are not uniform in the two sectors. In the financial sector, liquidity ratio (CUR) has a positive and statistically significant effect on the dividend payments of financial sector firms, while in the real sector, it has a negative and statistically insignificant effect on it. Only the profit after tax has positive and statistically significant effect on dividend payments in both financial and real sector firms.

A comparative analysis between the financial and real sector firms show that liquidity in terms of current ratio and profit after tax have positive and significant effects on dividend payments among the financial sector firms while profit after tax and sales have positive and significant effects on real sector firms. The study recommends that in taking dividend decisions, financial firms need to manage their liquidity position well and ensure profitability while real sector firms should focus more on their sales and profit after tax.