ABSTRACT
This study was carried out to determine effects of dividends and earnings on stock price
movement in Nigeria. This was done by examining the significance of cash dividend and
corporate earnings on stock prices in the Nigerian Stock Exchange for a period of ten years
from 1999 – 2008.
The data sourced from Nigeria Stock Exchange reports and the company
annual reports were analyzed using the regression tool. After the process of experimentation
using this regression tool, the researcher observed that stock price movement is more
significantly related to dividend than corporate earnings. Secondly, the optimization of
corporate earnings influences positively stock price movement as many investors look at it as
a significant factor for their choice for stock investment. This drive for such stock and the
market price adherence to the law of demand and supply influences the stock price.
Nevertheless, it is also observed that there is an autocorrelationship of the three variables,
dividend, earnings per share and stock price in choice of stocks for investment. It is
recommended, therefore, that Management should optimize their corporate earnings and
derive a dividend and retention policy decision in an optimum manner to achieve the
objective of maximizing the wealth of shareholders since the interrelationship of there
decision have a significant impact/effect on equity share price.
It is also recommended that further works on this should be carried out in order to improve
the body of existing knowledge in those areas in addition to a longitudinal study that will
cover a time horizon of more than ten years should be conducted as this may enable a proper
test on dividends and earnings. Management of this kind of investors should develop policies
that will satisfy the investors and thus, enhance their firm’s value.
There should be a dividend pay out ratio that companies need to maintain so that they can
enhance the value of their firms. Nevertheless, the study brings to the knowledge of all and
sundry that investors in Nigeria are dividend driven and would therefore be willing to pay
higher prices for stock that pay more dividend.
Finally, although factors like efficient market hypothesis, volume of equity, traded law of
demand and supply etc influence investors decisions, but, suffice it to say that with available
evidence, Nigeria investors are dividend driven as shown in the stock price movement/trend
over the years.
