The impact of taxes on the dividend policies of banks in nigeria

Thesis Abstract

This study attempts to explore the impact of taxes on the dividend policy of Nigerian banks. T o do this, it tries to answer questions as to the actual relationship between taxation and dividend pay-out ratio. It also attempts to explore the possible impact of profits on the dividend pay-out and examines factors influencing dividend policies. The purpose is to reveal how propounded dividend policy theories could apply to Nigerian banks and to make relevant recommendations. The study covers all banks quoted on the NSE using a sample size of 10 banks systematically selected and sample period of 10 years, judgmentally selected. A causal research model is adopted and secondary data sources (NSE Fact Books and Audited Accounts) are employed to collect relevant data. The study first computed the averages of the variables from the sample banks so that a common value is obtained for each of them, after which the pooled data is used to run a time series analysis based on the Ordinary Least Squares regression method. The study finds, amongst other things, that a 1% increase in taxation will cause a 32.47% decrease in DPR while a 1% increase in EPS will cause a 28.49% increase in DPR. However, there is no significant impact in any of the exogenous variables on the endogenous variable. The results suggest some form of induced dividend policies going by some of the effects of the banking recapitalisation program of 2004/2005 and other factors which include informational contents of dividends, high level of liquidity occasioned by the recapitalisation, need to sustain investor’s confidence and win over more shareholders’ funds, low investor protection in Nigeria, etc. The study recommends, amongst other things, that dividend policy adoption by Nigerian banks should be based on the particular circumstances of the banks and not necessarily on the traditional factors often formulated by academics. Also, a more detailed study may be necessary to clearly distil out the impact of the recapitalisation program on the dividend policy of banks in Nigeria

CHAPTER ONE