Determinants of Dividend Payout Ratio of Nigerian Deposit Money Banks

Abstract

Within the sphere of financial management for Nigerian Deposit Money Banks (DMBs), the dividend payout ratio stands as a crucial indicator, influenced by a myriad of factors. This study scrutinized the impact of banks' specific factors, macroeconomic influences, and mergers and acquisitions on the dividend payout ratio of five selected DMBs. Secondary data collected from annual report of the selected banks over the 1987-2022 period were utilized. Correlation analysis, panel least square regression, and diagnostic tests like Hausman test were employed for data analysis. Results showed that profitability, liquidity, and bank size were positively associated with dividend payout ratio except leverage, which negatively affected dividend payout ratio. Moreover, gross domestic product and exchange rate had favorable and substantial effect on dividend payout ratio. Contrastingly, inflation and interest rates had significant but adverse effect on dividend payout ratio. Furthermore, findings on post-mergers and acquisition showed that banks capitalization, current ratio, and market shares demonstrated positive and significant effect on dividend payout ratio; whereas, debt ratio exhibited negative effect. In conclusion, the study advocated for strategic measures among Nigerian banks, emphasizing the enhancement of profitability, maintenance of liquidity, and effective management of leverage to bolster their dividend payout policies.