Dividend Theory and Empirical Evidence: A Theoretical Perspective

Managerial Ownership and Firm Value of Selected Nigeria Listed Manufacturing Companies: Does Dividend Payment Policy Really Mediate?

“…Entrenchment effect often occurs when managers with large ownership shares have high managerial ownership shares, therefore, entrench themselves and difficult for other shareholders to take decision. According Meanwhile, Muriungi and Mwangi (2020) remark that increase in volume of retained earnings often indulge managers to pursue their interest which often make shareholders to minimize the sum of funds accessible to managers in order to reduce or eliminate the ideology of protecting their self-interest. Also, Hamid and Shafiullah (2012) stress that organization need to adopt regular payment in order to discourage the use of resources for personal gain by the managers.…”

“…Also, the theory assumes that collection of dividend reduces information asymmetry between different players in the market. Muriungi and Mwangi (2020) suggest that a firm that pays dividend assures investors that the firm is performing well which reduces risks associated with investments because it is more certain.…”

“…The inverse sign of the duo could also be attribute to the claims that increase in volume of retained earnings often indulge managers to pursue their interest which often make shareholders to minimize the sum of funds accessible to managers for the purpose of selfinterest. Given this, studies like Muriungi and Mwangi (2020), Ruan et al (2011) andJensen M. C. andMeckling (1976) have come to conclusion that retained earnings should be shared among different shareholders in an organization because share acquired by management to some certain level may give room to manager to pursue self-benefit without concern for increase in firm value. This finding concurred with the works of Rudiger and Rene (2009) and Wenjuan et al (2009) that showed that managerial ownership had a significant and an inverse effect on firm value.…”

“…According to Lihard and Ramon-Arthur (2017), dividend policy is a robust determinant factor for firm value, such that, a large dividend payment to each increases the stock price which directly influence the firm value. In view of this, it is established that a firm's choice of dividend policy does not necessary influence shareholders' wealth due to the fact that the value of the firm is determined by its earnings and investment strategy and not the way the earnings are shared among different shareholders (Maladjian and Rim, 2014;Miller and Modigliani, 1961;Moeljadi., 2014;Muriungi and Mwangi, 2020).…”

“…According to Agency theory as propounded by Jensen M. C. and Meckling (1976), separation of control and ownership gives rise to a conflict of interest between different stakeholders present in an organization with managers first protecting owners' interest at early stage and possibilities conflict interests between the duo at the latter stage. In view of this, Muriungi and Mwangi (2020) suggest that increase in volume of retained earnings often indulge managers to pursue their interest which often make shareholders to minimize the sum of funds accessible to managers, in order to reduce or eliminate the ideology of protecting their self-interest. Also, Ruan et al (2011) supported the above claims and reveal that more increase in the equity or share acquired by management to some certain level increases its shares value (managerial ownership) which may give room to manager to pursue self-benefit without concern for increase in firm value.…”