Earnings-Dividend Relationship in Corporate Nigeria; A Test of Predictive Efficacy

Abstract

Prompted by the need for an empirical evaluation of the relationship between corporate net earnings and dividend payouts of quoted Nigerian firms as well as the search for a strong predictive model for this relationship, the study evaluates the predictive efficacies of current- and one- year- lagged earnings regression models among the Nigerian quoted firms. Applying the ordinary least square regression analysis on one hundred and four (104) firms selected as the study sample, the results indicate that dividend payouts are relatively more sensitive to current earnings per share compared to past earnings per share. Further, the percentage change in dividend payouts attributable to changes in current earnings per share is found to be relatively higher than that attributable to changes in past earnings per share, thus providing evidence that current earnings model is relatively more effective in predicting the dividend payouts of Nigerian quoted firms. The study recommends strong information dissemination to all stakeholders in the Nigerian capital market in order to improve market efficiency and potential benefits derivable from the market by all participants.