Does Working Capital Management Matter in Dividend Policy Decision? Empirical Evidence from Nigeria

Abstract

This study examines the relationship between dividend payout ratio and working capital management and the effect of firm's working capital management practice on its dividend payout ratio. The working capital management is measured by the net trade cycle, current ratio and debt ratio. The data used in this study were obtained from twelve manufacturing companies quoted on the Nigeria Stock Exchange between 2002 and 2006. The data wer analysed using the Pearson product moment correlation technique and ordinary least square (OLS) regression technique. The results show that dividend payout ratio was influenced positively by profitability and net trade cycle but negatively by growth rate in earnings. Corporate profitability, working management, and growth in earnings have statistically insignificant effects on the dividend payout ratio at 5% confidence level. Hence, we can conclude that from this study working capital management is not significant in dividend policy decision. However, the result cannot be generalized owing to the problem of small sample size, seemingly poor model specification and failure to adopt the robust modern statistical technique provided by the fixed and random effects of panel data regression technique.

Corporate governance and dividend pay-out policy in UK listed SMEs

“…As previous noted, a number of past studies have examined the effect of firm-level characteristics, such as size, cash flow, leverage and profitability on dividend policy (Valipour, Rostami & Salehi 2009;Okpara 2010;Hunjra 2011;Jagannathan & Marakani, 2011;Oladipupo & Ibadin 2013;Mirbagherijam 2014). By contrast, studies examining the extent to which corporate governance mechanisms affect dividend policy are generally scarce, but particularly acute in the case of SMEs (Thanatawee, 2012;Abor & Fiador, 2013;Arshad et al, 2013;Ghasemi et al 2013;Iqbal 2013;Mansourinia et al 2013).…”

The Mapping Of Investor Perception On The High Financial Reporting Quality

“…The high yielded dividend policy aims to satisfy the investor, bringing the conflicts to a minimum level while easing the management's responsibility of maintaining high liquidity of cash flow. Having sacrificed for lacking the operational funding, the management has the confidence to obtain low capital cost (Oladipupo & Ibadin, 2013). Because of the negative consequences on the working capital, this policy can be used to estimate the market price in future periods (Zuo, 2015), where future market value is a new indicator of predicting the expected return in the future.…”

The Effect of Working Capital Management on Dividend Policy: An Empirical Analysis of Listed Firms in Ghana

“…However, profitability and collateral could not explain dividend payments. Oladipupo and Ibadin (2013) in establishing the relationship between working capital management and dividend policy in Nigeria employed listed manufacturing companies with data covering 2002-2006. Using the ordinary least squares, the findings revealed that profitability and working capital management (in terms of net trade cycle) have a positive insignificant relationship with dividend policy while earnings and firm growth related negatively and insignificantly with dividend policy.…”

“…The study follows the model used by Oladipupo and Ibadin (2013) and Yakubu (2016) with some modifications based on the selected variables. This is specified as follows:…”