Economic subjects | Investments, Stock exchange » Esther Amuche - The Impact of Dividend Policy and Earnings on Stock Prices of Nigeria Banks

Source: http://www.doksinet THE IMPACT OF DIVIDEND POLICY AND EARNINGS ON STOCK PRICES OF NIGERIA BANKS BY ANIKE, ESTHER AMUCHE PG/M.SC/09/53718 DEPARTMENT OF BANKING AND FINANCE FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA NSUKKA FEBUARY, 2014 1 Source: http://www.doksinet THE IMPACT OF DIVIDEND POLICY AND EARNINGS ON STOCK PRICES OF NIGERIA BANKS BY ANIKE, ESTHER AMUCHE PG/M.Sc/09/53718 A DISSERTATION SUBMITTED TO THE DEPARTMENT OF BANKING & FINANCE, FACULTY OF BUSINESS ADMINISTRATION IN PARTIAL FULLFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE(M.Sc) DEGREE IN BANKING AND FINANCE SUPERVISOR: PROF . C UCHE FEBUARY, 2014. DECLARATION 2 Source: http://www.doksinet I, Anike Esther Amuche, with registration number PG/M.Sc/09/53718, a postgraduate student in the Department of Banking and Finance do hereby declare that this work embodied in this Dissertation is original and has not been submitted in part or in full for any other diploma or

degree of this or any other University. STUDENT Anike, Esther Amuche APPROVAL 3 Source: http://www.doksinet This dissertation has been approved for the Department of Banking and Finance By SUPERVISOR Prof. C Uche HEAD OF DEPARTMENT Dr. JUJ Onwumere DEDICATION 4 Source: http://www.doksinet I dedicate this work to my father in heaven, the Almighty God who makes all things possible and does things at His appointed time.To you, oh Lord, be all the glory and adoration for your Love and Sufficiency. ACKNOWLEDGEMENTS It’s a thing of joy to know that someone cares for me. To this, I wish to express my overwhelming joy to all those whose advice, encouragement, prayer, care and love have 5 Source: http://www.doksinet made me a success. First, I want to acknowledge my amiable supervisor ProfCUche, for his assistance throughout the course of this research work, particularly his patience,

tolerance and his invaluable devotion to this work. My profound gratitude also must go to Dr Austin Ujunwa, who created time out of his tight schedule to assess my work properly. To my H.OD Dr JUJ Onwumere and all my lecturers, DrMrs OPEgbo, DrChikeleze, Dr Mrs N.J Modebe, Dr C Nwude, who groomed me towards attaining this height, I say thank you I must say thanks to all the staff in the department of Banking and Finance, among who are Mrs.Aneke, Mrs Anakwenze, and Aunty Chika My big nephew, Mr. Alum Martins (Igbudu 1 na-Nike), who has been a true brother indeed, whose anchor by the grace of God has made the sky my starting point. I will not fail to thank the couple who God used to encouraged me, Engr and Mrs Beloved-Dan Obi-Anike, Dr. Ekette Maurice. My family has been wonderful, for their timeless love prayers especially my lovely Mum, Mrs Anikeokwor Josephine, my brother, Hon. Anike Eugene, my aunts Ozo, Appolo and my sisters, Iyke-Ikpa Caroline, Anike Virginia and Okolo Nwanneka. My

typist, Blessing, who faithfully reproduced this work from mostly hand-written manuscript as a service of love. My thanks as well go to all the Staff and Management of Nigeria Stock Exchange Onitsha, Anambra State., whose assistance provided the data for my analysis and findings. Worthy of acknowledging are my friends whose encouragement gave my world a meaning. Notable among them are: Ujunwa Angela (Mrs),Ubagwu Charles, Ageme Tony, Anyaoku Emeka P, Nsofor Ebere, Ihuoma Ajuonuma, Mrs. Onuseluogu Oddi, MrsNkwonta Uzomaka, Imo G. Ibe, Offor Nneka, Mrs Okolo Alice to mention but a few I love you all Above all, I appreciate the giver of wisdom,the Excellency, the Ever Present help in time of need, the merciful and gracious Father. Thank YOU LORD ANIKE ESTHER AMUCHE DEPARTMENT OF BANKING AND FINANCE UNEC. TABLE OF CONTENTS Title Page - - - - - - i Declaration - - - - - - ii Approval Page - - - - - - iii Dedication - - - - - - iv 6 Source: http://www.doksinet

Acknowledgement - - - - - - v List of Tables - - - - - - ix Abstract - - - - - - x CHAPTER ONE INTRODUCTION 1.1 Background of the Study - - - - - 1 1.2 Statement of Problem - - - - - 4 1.3 Objectives of the Study - - - - - 5 1.4 Research Questions - - - - - 6 1.5 Research Hypotheses - - - - - 6 1.6 Scope of the Study - - - - - 6 1.7 Significance of the Study - - - - - 7 - - - - 10 References CHAPTER TWO REVIEW OF RELATED LITERATURE 2.1 Dividend Policies And Earnings 2.2 Types of Dividends - - - - - 17 2.3 Methods of Dividend Payment - - - - 18 2.4 Dividend Announcements and Stock Returns - - 19 2.5 Dividend Policy and Asymmetric Information - - 21 2.6 Stock Prices and Dividend Announcements - - - 23 2.7 Stock Prices, Dividends And Semi-Strong Market Efficiency 25 2.8 Stock Splits on Price And Liquidity - - - - 26 2.9 Corporate Dividend Policy Determinants -

- - 27 2.10 Shareholders Earnings (EPS) and the Firm - - - 29 References CHAPTER THREE RESEARCH METHODOLOGY 3.1 Research Design - - - - - 40 3.2 Nature and Sources of Data - - - - - 40 3.3 Population and Sample Size - - - - - 40 7 Source: http://www.doksinet 3.4 Model Specification - - - - - 41 3.5 Model Justification - - - - - 42 3.6 Description of Research Variables - - - - - 43 3.61 Dependent Variable - - - - - 43 3.62 Independent Variables - - - - - 43 3.63 Control Variables - - - - - 44 3.7 Techniques of Analysis - - - - - 44 References CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA 4.1 Presentation of Data - - - - - 47 4.2 Test of Hypotheses - - - - - 50 4.21 Test of Hypothesis One - - - - - 50 4.22 Test of Hypothesis Two - - - - - 51 4.23 Test of Hypothesis Three - - - - - 53 4.3 Comparaism Of Results with Objectives - - - - 54 4.31 Objective

One: To determine the impact of dividend yield on stock - 54 - 55 - 55 prices of Nigerian banks 4.32 - - - Objective Two: To determine the impact of earnings yield on stock prices of Nigerian banks 4.33 - - - - - Objective Three: To determine the impact of dividend payout ratio on stock prices of Nigeria banks. - - - - Reference 8 Source: http://www.doksinet CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 5.1 Summary of Findings - - - - - 59 5.2 Conclusion - - - - - 59 5.3 Recommendations - - - - - 60 5.4 Contributions to Knowledge - - - - - 61 Bibliography 9 Source: http://www.doksinet LIST OF TABLES Table 4.1 Panel Data of Model Proxies - - - 47 Table 4.2 Descriptive Statistic - - - 50 Table 4.3 Regression Result of Hypothesis One - - - 52 Table 4.4 Regression Result of Hypothesis Two - - - 53 10 Source: http://www.doksinet ABSTRACT This study examined the impact of dividend

yield on stock prices of Nigerian banks; the impact of earnings yield on stock prices of Nigeria banks and the impact of payout ratio on stock prices of Nigeria banks. The study adopted the ex-post-facto research design and panel data covering 5-year period 2006-2010 were collated from annual reports of banks and the Nigeria Stock Exchange daily official list. The Ordinary Least Square Regression Model was used to estimate the relationship between dividend yield, earnings yield, payout ratio and stock prices. Average of daily stock prices was adopted as the dependent variable, while the independent variables included dividend yield (DY), earnings yield (EY) and payout ratio (POR). The result emanating from this study revealed that dividend yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient of Dyield = -3.365; p-value = 0035) Earnings yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient

of Eyield = -0.331; p-value = 0048) and dividend payout ratio had negative and non-significant impact on commercial banks’ stock prices in Nigeria (coefficient of Por = -1.411; p-value = 0269) The study thus, revealed that the dividend yield, earnings yield and payout ratio are not factors that influences stock prices rather the bank size was found to have positive and significant impact on stock prices. The study therefore recommends among others that managers should act in the best interest of investor as to reduce the agency problem, thus complete information about the dividend polices of the firm should be provided. 11 Source: http://www.doksinet CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY The subject matter of dividend policy remains one of the most controversial issues in corporate finance. For a very long time now, financial economists have engaged in modeling and examining corporate dividend policy and earnings as they affect banks stock prices in Nigeria

(Amidu, 2007). Black (1976) hinted that, “The harder we look at the dividend picture, it seems like a puzzle with pieces that don’t fit together”. In over thirty years since then a vast amount of literature has been produced examining dividend policy. Recently, however, Frankfurterc and Wood (2002) concluded in the same vein as Black and Scholes (1974) that the dividend “puzzle”, both as a share value-enhancing feature and as a matter of policy, is one of the most challenging topics of modern financial economics. Forty years of research have not been able to resolve it. Research no dividend policy and earnings have shown not only that a general theory of dividend policy remains elusive, but also that corporate dividend practice varies over time, among firms and across countries. The patterns of corporate dividend policies not only vary over time but also across countries, especially between developed and emerging financial institutions. Glen, et al (1995) suggested that

dividend policies in emerging markets differed from those in developed markets. They reported that dividend payout ratios in developing countries were only about two thirds of that of developed countries. Different scholars have defined the term dividend policy differently. Hamid, et al (2012) defined dividend policy as the exchange between retained earning and paying out cash or issuing new shares to shareholders. Booth and Cleary (2010) defined dividend policy as an exclusive decision by the management to decide what parentage of profit is distributed among the shareholders or what percentage of it retains to fulfill its internal needs. Nwude (2003:112) defined the term as the guiding principle for determining the portion of a company’s net profit after taxes to be paid out to the residual shareholders as dividend during a particular financial year. Emekekwue (2005:393) defined dividend policy as the portion of firm earnings that will be paid out as dividend or held back as

retained earnings. Huda and Farah (2011) pointed out 12 Source: http://www.doksinet that dividend policy has been an issue of interest in financial literature; academics and researchers has developed many theoretical models describing the factors that managers should consider when making dividend policy decisions. Key factors behind the dividend decision have been studied by numerous researchers. Lintner (1956) suggested that dividend payment pattern of a firm is influenced by the current year earnings and previous year dividends. In this case, dividend may be seen as the free cash flows which comprises of cash remaining after all business expenses have been met (Damodaran, 2002). The dividend decision in corporate finance is a decision made by the directors of a company. It relates to the amount and timing of any cash payments made to the company’s stockholders. The decision as stated by Pandey (2005), is an important one for the firm as it may influence the financial structure

and stock price of the firm. In addition, the decision may determine the amount of taxations that stockholders pay. The dividend payment ratio is a major aspect of the dividend policy of the firm, which affects the value of the firm to the share holders (Litzenberger and Ramaswany, 1982). The classical school of thought holds this view and they believe that dividends are paid to influence their share prices. They also believe that market price of an equity is a representation of the present value of estimated cash dividends that can be generated by the equity (Gordon, 1959). Another classical school of thought, on the other hand, believes that the price of equity is a function of the earnings of the company. They believe that dividend payout is irrelevant to evaluating the worth of equity. What matters, they say is earnings (Miller and Modigliani, 1961). Mayo (2008: 364-365) observed that retained earnings provide funds to finance the firms on long term growth. It is the most

significant source of financing a firm’s investment Dividends are paid in cash, thus the distribution of earnings utilizes the available cash of the company. When the firm increases the retained portion on net earnings, shareholders’ current income in the form of dividends decreases, but the use of retained earnings to finance profitable investments is expected to increase future earnings. On the other hand, when dividends increase, shareholders’ current income will increase but the firm may be unable to retain earnings and, thus, relinquish possible investment opportunities and future earnings. 13 Source: http://www.doksinet The theoretical rationale for corporate dividend policy has been an important topic in corporate finance for a very long time. After the dividend policy-irrelevance proposition by Miller and Modigliani (1961), several theories have attempted to explain why and how companies pay out the cash generated by their business operations as dividend. Three main

factors may influence a firm’s dividend decision. These are: - Free cash flows, Dividend clientele and Information signaling (Pandey, 2005). Under the free-cash flow theory of dividends, the payment of dividends is very simple: the firm simply pays out, as dividend, any surplus cash after it invests in all available positive net present value projects. Criticism of the theory is that it does not explain the observed dividend policies of real world companies. Most companies pay relatively consistent dividend from one year to the next and managers tend to prefer to pay a steadily increasing dividend rather than paying dividend that fluctuates dramatically from one year to the next. These criticisms have led to the development of other models that seek to explain the dividend decision (Brigham, 1995). Under the dividend clientele, a particular pattern of dividend payments may suit one type of stockholders more than another. A retiree may prefer to invest in a firm that provides a

consistently high dividend yield, whereas, a person with a huge income from employment may prefer to avoid dividends due to their high marginal tax rate on income. If Clientele exists for a particular pattern of dividend payment, a firm may be able to maximize its stock price and minimize its cost of capital by catering to a particular clientele. This model may help to explain the relatively consistent dividend policies followed by most listed companies (Okafor, 1983). According to the clientele effect theory of dividend policy, investors who would like to receive some cash from their investment always have the option of selling a portion of their holding. This argument is even more cogent in recent times with the advent of very low-cost discount stockholders. Thus, it remains possible that there are taxation based clientele for certain types of dividend policies (Pandey, 2005). Information content or signaling says that investors regard dividend changes as signals of management

earning potentials. The model was developed by Ezra (1983) It suggests that dividend announcements convey information to investors regarding the firm’s value prospects (Ezra, 1983). He said many earlier studies had shown that stock prices tend to 14 Source: http://www.doksinet increase when an increase in dividend is announced but tend to decrease when a decrease or omission is announced. Therefore, Ezra pointed out that, this is likely due to when investors have complete information about the firm, they will look for other information that may provide a clue as to the firm’s future prospects and also managers have more information than investors about the firm and such information may inform their dividend decision. It could be seen, therefore, that when mangers lack confidence in the firm’s ability to generate cash flows in the future, they may keep dividends constant or possibly even reduce the amount of dividends payout. Conversely, managers that have access to

information that indicates very good future prospects for the firm are more likely to increase dividends (Ezra, 1963). Hence, the purpose of this study is to perform a cross-sectional study to find the situations in Nigeria which these hypotheses apply and also determine how stock prices react to such dividend and earnings report as indicated by investors’ ratio values with bias to bank stocks. 1.2 STATEMENT OF PROBLEM The goal of corporate entities is to maximize the value of shareholders’ investment in the firm. Managers pursue this goal through their investment, financing and dividend decisions Investment decisions involve the selection of positive net present value projects. Financing decisions involve the selection of a capital structure that would minimize the cost of capital of the firm while dividend decisions of the firm determine the reward which investors and potential investors of the firm receive from their investment in the firm. Apart from the investment and

financing decisions, managers need to decide, on regular basis, whether to pay out of the earning to shareholders, reducing the agency problem (Jensen and Meckling, 1976). However, the question remains whether paying out of earnings would essentially create value for the shareholders or not. A dividend payment provides cash flow to the shareholders but reduces firm’s recourses for investment; this dilemma is a myth in the finance literature. A great deal of theoretical and empirical research on dividend policy effects has been done over the last several decades. Theoretically, cash dividend from earnings means giving reward to the shareholders, that is, something they already own in the company; but this will 15 Source: http://www.doksinet be offset by the decline in stock value. In an ideal world (without tax and any restrictions) therefore dividend payments would have no impact on the shareholders’ value. In the real world, however a change in the dividend policy is often

followed by a change in the market value of stocks. The economic argument for investor’s preference for dividend income was offered by Graham and Dodd (1934). Subsequently, Walter (1963) and Gordon (1959 and 1962) forwarded the dividend relevancy idea, which has been formalized into a theory, postulating that current stock price would reflect the present value of all expected dividend payments in the future. Another researcher made efforts to further understand the dividend controversy. Average investors, subject to their personal tax rates, would prefer to have less cash dividend if it is taxable: size of optimal dividend inversely related to personal income tax rates (Pye, 1972). The theoretical literature on dividend effects has been well developed. Researchers largely accepted that dividend per-se has no impact on the shareholders’ value in an ideal economy. However, in a real world, dividend announcement is important to the shareholders because of its tax effect and

information content. Given the above problems and the controversies surrounding the impact of dividend policy and earnings on stock prices of Nigeria banks, the lacuna which this study seeks to fill is to provide empirical evidence on the impact of dividend policy and earnings on stock prices of Nigeria banks using investment ratios such as dividend yield, earnings yield, payout ratio with the introduction of some control variables in an emerging market like Nigeria. Hence, the contribution of this study is in terms of geography. 1.3 OBJECTIVES OF THE STUDY The general objective of this study is to determine the impact of dividend policy and earnings on bank stock prices. However, the specific objectives are: 1. To determine the impact of dividend yield on stock prices of Nigerian banks 2. To determine the impact of earnings yield on stock prices of Nigerian banks 3. To determine the impact of dividend payout ratio on stock prices of Nigeria banks 16 Source: http://www.doksinet

1.4 RESEARCH QUESTIONS As a result of the objectives stated above the following research questions will be asked. These are: 1. To what extent does the dividend yield of banks listed on the Nigerian Stock Exchange have positive significant impact on their stock prices? 2. To what extent does the earnings yield of banks listed on the Nigerian Stock Exchange have positive significant impact on their stock prices? 3. To what extent does the payout ratio of banks listed on the Nigerian Stock Exchange have positive significant impact on their stock prices? 1.5 RESEARCH HYPOTHESES The research questions raised above therefore led to the formulation of the following hypothetical statements. These are: 1. Dividend yield does not have positive and significant impact on stock prices of Nigerian banks. 2. Earnings yield does not have positive and significant impact on stock prices of Nigerian banks. 3. Dividend payout ratio does not have positive and significant impact on stock prices of

Nigeria banks. 1.6 SCOPE OF THE STUDY The banking sector represents the lending spectrum of any economy, thus responsible for the supply of funds to the productive sub-sectors of the Nigerian economy, hence its importance to the growth of the Nigerian Economy. The study covers a five years period (2006-2010), and is based on reports of twenty (20) banks (Data on Spring Bank Plc was not available). The choice becomes appropriate within the period culminated in the reduction of banks in the country to 21 banks. However, also, the post consolidated financial statements and accounts of these banks were published in 2006. As also observed since 2005, the Banking sector of the Nigerian Stock Exchange has been the most active till date. Panel data series was collated from the Annual Statements and Accounts as well as stock prices of these banks from the Nigeria Stock Exchange at the end of the year 17 Source: http://www.doksinet 1.7 SIGNIFICANCE OF THE STUDY This research will be

particularly significant to the following groups: 1) INVESTORS AND POTENTIAL INVESTORS The major beneficiaries of an enhanced value created firm as indicated by the share prices are investors and potential investors. Their contribution, in monetary terms in the promotion, incorporation, continual existence to the growth of the firm must be rewarded with a premium above their risk free rate, thus, acting as a compensation for time and risk inherent in these firms. Therefore, this research will contribute, along with other similar literatures available in this area of finance, to enhancing the maximization of investors and potential investors’ objectives as concern capital gains from their investment. 2) ACADEMIC Essentially, this research intends to contribute significantly to the volume of literature available in this area of finance. In academics, the unknown is never exhausted, as the list of what we do not know could go on forever. Therefore, as a contribution to this area,

hints, recommendations about dividends, earnings and stock prices will be examined. 3) MANAGEMENT In large firms, there is a divorce between management and ownership. The decision taking authority in a company lies in the hands of managers. Shareholders as owners of the company are the principals and managers are their agents. Thus, there is principal-agent relationship between shareholders and managers therefore managers should and must act in the best interest of shareholders as consistent with shareholders’ wealth maximization objectives of the firm. Therefore, this research will enable management to understand what must be done in order to act in the best interest of shareholders in choosing dividend policies that will maximize shareholders’ value. 18 Source: http://www.doksinet REFERENCES Amidu, M. (2007), “How Does Dividend Policy Affect Performance of the Firm on Ghana Stock Exchange?”, Investment Management And Financial Innovations, Vol. 4, Issue 2, Pp 103-112.

Black, F. (1976), “The Dividend Puzzle”, Journal of Portfolio Management, Vol 2, pp 5-8 Black, F., and Scholes M (1974), “The Effects of Dividend Yield and Dividend Policy on Common Stock Prices and Returns”, Journal of Financial Economics, Vol. 1, pp 1-22. Booth, L. and Cleary, W S (2010), Dividend Policy An Introduction to Corporate Finance, Canadian: 2nd edition, John Wiley and Sons. Brigham, E. F (1995), Fundamentals of Financial Management, New York: McGraw Hill Damodaran, A. (2002), Corporate Finance, Theory and Practice International Edition, New York: John Wiley and Son. DeAngelo, H. and DeAngelo, L (2006), “The Irrelevance of the M & M Dividend Irrelevance Theory”, Journal of Financial Economics, Vol.79, pp 293-315 Emekekekwue, P. E (2005), Corporate Financial Management, 5th edition, African Bureau of Educational Sciences. Ezra, S. (1963), The Theory of Financial Management, New York: Columbia University Press. Ezra, S. (1983), The Theory of Financial

Management, New York: Columbia University Press. Frankfurter, G. M and Wood, B J (2002), “Dividend Policy Theories and their Empirical Tests”, International Review of Financial Analysis, Vol. 11 No 2 pp 111-138 Glen, J. D, Karmokolias Y, Miller R R, and Shah S (1995), “Dividend Policy and in Emerging Markets”, International Financial Corporation. Discussion Paper No 26. Gordon, M. J (1962), “The Savings Investment and Valuation of a Corporation”, The Review of Economics and Statistics, Vol. 44 pp 37-51 Gordon, M. J (1959), “Dividend, Earnings and Stock Prices”, The Review of Economics and Statistics, Vol. 41 No 2 May, pp 99-105 19 Source: http://www.doksinet Graham, B. and Dodd, D L (1934), Security Analysis, lst edition, New York: McGraw-Hill Hamid, Z., Hanif, CA, Ul-Malook, S S and Wasimullah (2012), “The Effect of Taxes on Dividend Policy of Banking Sector in Pakistan”, African Journal of Business Management, Vol. 6 No 8, February, pp 2951-2954 Huda, F. and

Farah, T (2011), “Determinants of Dividend Decision: A Focus on Banking Sector in Bangladesh”, International Research Journal of Finance and Economics ISSN 1450-2887 Issue 77, pp33-46. Jensen, M. C and Meckling, W H (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, Vol. 3 No 4, pp 305-360 Lease, R.C, John, K, Kalay, A, Loewenstein, U and Sarig, OH (2000), Dividend Policy: It’s Impact on Firm Value. Boston: Harvard Business School Press Lintner, J. (1956), “Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes”, American Economic Review, Vol. 46 No 2, pp 97-113 Litzenberger, R. H and Ramaswamy, K (1982), “The Effects Dividends on Common Stock Prices Tax Effects or Information Effects”, The Journal of Finance, Vol. 37 No 2 May, pp 429-443. Mayo, H. B (2008), Investments, Introduction International Studies: 9th edition, Canada: Thomson Higher Education. Miller, M. H and

Modigliani, F (1961), “Dividend Policy, Growth and the Valuation of Shares,” The Journal of Business, Vol. 43 No 4 Oct, pp 411-433 Nwude, C. E (2003), Basic Principles of Financial Management A Second Course: 1st edition Enugu: Chuke Nwude Nigeria. Okafor, F O. (1983), Investment Decision Evaluation of Projects and Securities, Enugu: Gostak Publishing Company Ltd. Pandey, I. M (2005), Financial Management, 9th edition, New Delhi: Vikas Publishers Pye, G. (1972), “Preferential Tax Treatment of Capital Gains, Optimal Dividend Policy and Capital Budgeting”, The Quarterly Journal of Economics, Vol. 86, pp 226-242 Walter, J. E (1963), “Dividend Policy; It Influence on the Value of the Enterprise”, The Journal of Finance, Vol. 18 No 2 May, pp 280-291 20 Source: http://www.doksinet CHAPTER TWO REVIEW OF RELATED LITERATURE 2.1 DIVIDEND POLICIES AND EARNINGS Nwude (2003:112) defines dividend policy as the guiding principle for determining the portion of a company’s net

profit after taxes to be paid out to the residual shareholders as dividend during a particular financial year; the purpose of a dividend policy being to maximize shareholders’ wealth, by which is dependent on both current dividend and capital gains. Mishra and Narender (1996) found that not all profit-making state owned enterprises have adhered to the dividend policy guidelines. Emekekwue (2005:393), the essence of the dividend policy is to determine what portion of firms’ earnings that will be paid out as dividend or held back as retained earnings. Retained earnings are one of the important sources of financing of firms’ projects. Dividend, on the other hand, is that portion of a firm’s after tax profit that is shared out to shareholders as reward for investment while dividend, puts disposable income in the hands of shareholders. Juma’h and Pacheco (2008) assert that, on average, profitability, liquidity and the size of companies are important determinant of cash dividend

decision. Arif, et al (2011), opines that discretionary accruals do not significantly influence dividend policy. It means that the practices of earnings management are not only for the sake of dividend avoidance, but there can be several other reasons for this manipulation. The investor while making investment decision with a hope to have dividend, should not focus on the earnings management as a signal for the dividend policy formulation. Emekekwue (2005:393) found that dividend policies vary among firms. Some vary with the business cycle while others do not The so called growth firms usually pay out paltry amounts to shareholders and use what is left to address the financial needs of the firm. However, the objective of providing funds to build up reserves in order to finance expansion projects, service and retire existing obligations and, consequently, enhance the earnings power of the firm is at variance with putting disposable income in the hands of shareholders. A high rate of

retained earnings translates to a lesser amount of disposable income to 21 Source: http://www.doksinet shareholders. Similarly, if a large portion of corporate earnings is paid out as dividend, the firm will not have enough to service and retire existing obligations, and of course, for reinvestment. Since retained earnings act as a buffer to the future earnings capacity of the firm, it is generally argued that a drop in retained earnings will precipitate a drop in the market value of stocks. Basse (2009) is of the view that firms seem to increase their dividend payments when facing an environment of a rising price level in order to stabilize the real value of dividend income. Therefore, higher inflation is a major driver of dividend increases. Brennan and Thakor (1990) found that despite the preferential tax treatment of capital gains for individual investors, majority of a firm’s shareholders may support dividend payment for small distributions. The directions in making dividend

decisions should therefore give some consideration to the preference of the various categories of shareholders, and the problem is usually to identify the consensus preference of shareholders, especially in the case of widely held companies. The incidence of taxation on the firm and the shareholders has a bearing on dividend policy. Tax is a strong fiscal disincentive on dividend distribution Miller and Scholes (1978) observed that dividend taxes do not influence share prices. Harris, et al (1999) found that if share prices absorb the effect of dividend taxation, then corporations could distribute dividends without imposing a penalty on shareholders at the margin, that is, dividend policy would be unaffected by dividend taxes. The Dividend Signaling Hypothesis argues that dividends are used by companies to signal higher than expected future free cash flow, if managers have private information about the future or current cash flow, then investors will interpret a current dividend

increase (decrease) as a signal that managers expect permanently higher (lower) future free cash flow levels (Bhattacharya, 1979). The Free Cash Flow Hypothesis, first explained by Jensen and Meckling (1976), argues that agency problems arise in companies where ownership and control are separated, such as in public companies with disperse shareholding. Managers have an incentive to over invest relative to their first best optimal level in companies with sizable free cash flows or cash reserves. The overinvestment stems from the empire building or perks-prone attributes 22 Source: http://www.doksinet embedded in the managers utility function. An increase in dividend reduces the free cash flow available to managers and, therefore, limits the overinvestment problem, creating value for the company. Conversely, a dividend cut augments the cash on hand to the managers and aggravates the overinvestment problem. The Maturity Hypothesis, advanced by Grullon, et al (2002) and DeAngelo and

DeAngelo (2006), argues that, as a company matures, its investment opportunity set shrinks with a consequent decline in systematic risk. A positive price reaction to a dividend increase suggests that the company has entered a mature life cycle stage of lower profitability and lower risk. According to the Maturity Hypothesis, reactions to news about systematic risk reduction dominate reactions about lower future profits and, therefore, the stock price response to a dividend increase announcement is positive. Conversely, the decision to decrease dividends signals the transitioning from a mature to a decline stage with higher systematic risk and even lower profitability. The stock price response to a dividend decrease announcement is, therefore, negative. The Maturity Hypothesis is a conjecture, because Grullon, et al (2002) do not develop a theoretical model and, therefore, do not propose a separating equilibrium in which other companies cannot mimic mature companies. Also the Catering

Hypothesis, proposed by Baker and Wurgler (2003), assumes that for either institutional or psychological reasons, some investors have an uninformed and perhaps time-varying demand for dividend-paying stocks. For instance, dividend clientele theories argue that changes in tax code, transaction costs or institutional investment constraint can lead to changes in the demand for dividend paying stocks. Behavioural explanations, such as the bird-in- the-hand or self-control arguments, could also lead to a time-varying demand for dividend paying stocks. The market, therefore, assigns a timevarying premium to dividend paying stocks Managers cater to this premium by paying out more dividends when the dividend premium is high, and by holding cash inside the company when the dividend premium is low. Although dividend payers and non-payers are consistently different in many characteristics, such as size, life-cycle stage and profitability, Baker and Wurgeler (2003) provide some evidence that

managers cater to investor sentiment and their conclusions are robust to a variety of alternative explanations. 23 Source: http://www.doksinet Despite extensive empirical testing of the above dividend hypotheses over the last 30 years, the conclusions are surprisingly varied, and a wide consensus on the corporate payout rationale is still lacking. The empirical evidence on the Dividend Signaling Hypothesis is mixed at best. On one hand, Nissim and Ziv (2001) found that using a particular model of earnings expectations, current dividend changes are positively correlated to future earnings changes hence the stock prices. On the other hand, other studies (among others, Deangelo, et al 2003 and Benartzi, et al 1997) found positive correlation between dividend changes and concurrent or lagged earnings changes, but no correlation with future earnings changes. Even more interesting, they find that companies that cut dividends have higher earnings in the future relative to comparable

companies. The Maturity Hypothesis is supported not only by Grullon, et al (2002), but also by DeAngelo, et al (2003). In their paper, they show that the fraction of publicly-traded industrial firms that pay dividends is high when retained earnings are a large portion of total equity and falls to near zero when most equity is contributed rather than earned. The earned/contributed capital mix is therefore a critical parameter to classify the life-cycle stage of a company. Although the Catering Hypothesis has been formulated only recently, Li and Lie (2006) shows that the stock market reaction to dividend changes depends on the dividend premium associated with dividend-paying stocks. In buttressing the signaling effect of dividend decision of the firm, Pandey (2005) says investors can use the knowledge about managers’ behavior to inform their decision to buy or sell the firm’s stock, bidding the price up in the case of positive dividends surprise or scaling it down when dividends

do not meet expectations. This view was supported by Miller and Rock (1985). Thus, this, in turn, may influence the dividend decision as managers know that stockholders closely watch dividend announcements looking for good or bad news. As managers tend to avoid sending a negative signal to the market about the future prospects of their firms, this also tends to lead to a dividend policy of a steady, gradually increasing payment (Bhaumik, 2007). 24 Source: http://www.doksinet In general, as stated by Pandey (2005), the dividend decision is usually taken by considering, at least, the three questions of: How much excess cash is available? What do our investors prefer?, And what will be the effect on our stock prices of announcing the amount of the dividend? Therefore, as confirmed by Patra (2005), the dividend decision is the major decision area of financial management. A firm is to decide what portion of earnings would be distributed to the shareholders by way of dividend and what

portion of the same (earnings) would be retained in the firm for its future growth. Therefore, Patra concludes that dividend and retention are desirable but they are conflicting with each other. From the forgoing, a finance manager should be able to formulate a suitable dividend policy that will satisfy the shareholders without hampering the progress of the firm. In finance, there are various theories that attempt to explain the relationship between a firm’s dividend policy and common stock. These are: Dividend Relevance Theory, Optimal Dividend Theory (policy) and Dividend Irrelevance Theory. Walter (1963) argue that the choice of dividend policies almost always affect the value of the firm. His model, one of the earliest theoretical works, shows the importance of the relationship between the firm’s rate of return and its cost of capital in determining the dividend policy that will maximize the wealth of shareholders. Walter’s model was based on the following assumptions,

according to Francis (1972): (1) the firm finances all investments through retained earnings, that is, debt or new equity is not issued, (2) The firm’s rate of return and its cost of capital are constant (3) all earnings are either distributed as dividends or reinstated internally immediately (4) there is a constant EPS and DPS and (5) the firm has a very long or indefinite life (Pandey, 2005). According to Ezra (1963), in Walter’s model, dividend policy is a financial decision and when the dividend policy of a firm is treated as a financing decision, the payment of cash is a passive residual. Another relevance model was developed by Myron Gordon which explicitly relates the market value of the firm to dividend policy (Gordon, 1962). Gordon’s model was based on the following assumptions: the firm is an equity firm and it has no debt; no external financing is available; the internal rate of return of the firm is constant; the firm and its streams of earnings are perpetual; the

appropriate discount rate for the firm remains 25 Source: http://www.doksinet constant; corporate taxes do not exist; constant retention and the cost of capital is greater than its growth rate. Gordon model’s conclusions about the dividend policy are similar to that of Walter’s model. This similarity, according to Pandey (2005), is due to the similarities the of assumptions that underline both model, thus, Gordon’s model suffers from the same limitations as Walter’s model. To underline, the relevance of dividend policy, is the bird-inhand argument of Krishman (1933) This view is based on the assumption that under conditions of uncertainty, investors tend to discount near dividends at a higher rate than they discount future dividends. Investors thus behaving rationally are risk averse and, therefore, have a preference for near dividends to future dividend (Pandey, 2005). The logic underlining these bird-in-hand arguments can be captured in the words of Krishman (1933),

when he said “if two stocks with identical earnings record and prospects, but the one paying a larger dividend than the other, the former will undoubtedly command a higher price merely because stockholders prefer present to future values. Myopic vision plays a part in the price making process. Stockholders often act upon the principle that a bird-in-hand is worth two in the bush and, for this reason, are willing to pay a premium for the stock with the higher dividend rate, just as they discount the one with the lower rate” (Pandey, 2005:284). Gordon, (1962) also expresses the bird-in-hand argument more convincingly and in formal terms. According to him, uncertainty increases with futurity, that is the further one looks into the future, the more uncertain dividend becomes. Accordingly, when dividend policy is considered in the context of uncertainty, the appropriate discount rate cannot be assumed to be constant (Pandey, 2005). In fact, according to him, it increases with

uncertainty and investors prefer to avoid uncertainty and would be willing to pay higher price for the share that pays the greater current dividend, all other things held constant. Miller and Modigliani (1961), are the chief advocates of the dividend irrelevance argument. For them under a perfect market situation, the dividend policy of a firm is irrelevant, as it does not affect the value of the firm. They argue that the value of the firm depends on the firm’s earnings that result from the investment policy; when the investment decision of the 26 Source: http://www.doksinet firm is given, dividend decision, which is the split of earnings between dividend and retained earnings, is of no significance in determining the value of the firm. Francis (1972) asserts that the M and M hypothesis of irrelevance is based on the following assumptions: the firm operates in a perfect market where investors behave rationally and information is freely available to all, and transaction and

flotation costs do not exist; no taxes exist; the firm has a fixed investment policy and risk of uncertainty does not exist. Thus, the M and M (1961) dividend irrelevance proposition states that changes in dividends are offset one-for-one by changes in proceeds from net new issues of securities, so that investment and earnings are unaffected or does not affect equity valuation. These irrelevance propositions have been questioned by De Angelo and DeAngelo (2006) who assert that dividends payout rules, like investment plans, can be sub optimal. They specifically claimed that the dividend irrelevance proposition is true only in environments that are simplified in a way that is not generally appreciated. They assert that in a more general setting, the dividend policy is relevant in exactly the same sense as investment policy is relevant. In another strand of finance-literature on asset pricing, analysts take the view that paying low level of dividend does not result in under-valuation of

the firm; the value of a firm with a given current capital is the same under low or zero future dividends as high future dividend. This view is known as the Neutrality of dividend policy and is held by Black (1976). Black and Scholes (1974) observed that shareholders trade-off the benefits of dividend against the tax losses. Based on this trade off, shareholders are classified into three clienteles: a clientele that considers dividend as always good; clientele that considers dividends as always bad and clientele flat are indifferent to dividend. As explained by Pandey (2005), most shareholders in high tax brackets may belong to high payout clientele since, in their case, the tax advantage may outweigh the benefit of dividends. On the other hand, shareholders in low tax bracket may fit into low payout clientele as they may suffer marginal tax disadvantages of dividend while tax-exempt investors are indifferent between dividends and capital gains, since they pay no taxes on their income.

So, the supply of dividends and demand for dividend matched, there will be no gain if a firm changes its dividend policy since the investors have already made their choices 27 Source: http://www.doksinet or there exist opportunities for shareholders to shift from one firm to another (Pandey, 2005). In a bid to satisfy these two objectives, management is put in serious dilemma as they must come up with policies that will address their needs for reserves and disposable income to shareholders. 2.2 TYPES OF DIVIDENDS Nwude (2003:121-126) points out that there are five types of dividends that payout. These consist of cash dividend, stock dividend or bonus issues, stock or share split, reverse stock split and stock repurchase. Cash Dividend: Cash dividend is payment of dividends in cash. This is customary for any company that declares dividends to pay in cash. When a cash dividend is paid the implication of the balance sheet is that the company’s cash account and reserves account will

be reduced, thus reducing both the total assets and the net worth of the company. A company that declares cash dividend must ensure that it has sufficient cash to meet it requirements. Stock Dividend or Bonus Issue: Stock dividend is the payment of dividend in the form of issue of additional shares to the residual owners of the firm. It involves capitalizing the company’s share premium or reserves and increasing the share capital account by the same amount capitalized from the reserves account Liquidity is preserved as no cash leaves the company. The advantage to the shareholders is that they receive a dividend which they can convert into cash whenever they wish to sell their share while the disadvantage is that as the number of equity shares is increased, if the retained earnings do not yield a satisfactory rate of return, the share price can fall, especially when there is massive off-loading by the shareholders in the capital market. Stock dividend is issued to each shareholder in

proportion to his or her existing shareholding in the company. Stock or Share Split: This means the division of the existing share price by two or multiplication of the existing number of shares by two. The effect of stock split is that it reduces the prevailing par or nominal value of shares by half and doubles the existing number of shares. Management uses stock split to lower the price of its shares to attract increased trading activity on the shares on the stock exchange. Stock split does not affect 28 Source: http://www.doksinet either side of the balance sheet in terms of Naira amount, but changes the figure and book entry of the number of shares outstanding as well as the par value. Reverse Stock Split: A reverse stock split is a financial strategy of consolidating the nominal value of an existing share issue and a corresponding decrease in the number of shares in existence. Stock Repurchase: This is the acquisition of a company’s outstanding shares by the company itself

for warehousing in the stock treasury. The purpose of stock repurchase may be to reduce the number of outstanding shares in order to increase the earnings per share (EPS) of the remaining shares which will consequently increase the market price per share (MPPS), and thus, general capital gains to shareholders. The capital gains substitute the cash dividends. 2.3 METHODS OF DIVIDEND PAYMENT In Nigeria, the payment of dividend is predicated on the existing legislations which could be amended from time to time. Nwude (2003:127) points out that section 379(1) of the Companies and Allied Matters Decree (CAMD) 1990 now Act, states that a company may in general meeting, declare dividends in respect of a year or other period only on the recommendation of the directors. The company shall pay, from time to time to the members such interim dividends as appear to the directors to be justified by the profits of the company. The general meeting shall have the power to declare the amount of

dividend recommended by directors, but shall have no power to increase the recommended amount. Where the recommendation of the directors of a company with respect to the declaration of a dividend is varied in accordance with subsection (3) of this section by the company in general meeting, a statement to that effect shall be included in the relevant annual return. Subject to the provisions of this Decree, dividends shall be payable to the shareholders only out of the distributable profits of the company. Section 380 provides that subject to the company being able to pay its debts as they fall due, the company may pay dividends out of the following profits: 29 Source: http://www.doksinet • Profit arising from the use of the company’s property, although it is a lasting asset. • Revenue Reserves. • Realized profit on a fixed asset sold, but where more than one asset is sold, the net realized profit on assets sold. In Nigeria, dividends are often paid twice: the first is

the interim dividend and the final dividend. Brealey and Myers (1999:418) assert that dividend is set by the firm’s board of directors. The announcement states that the payment will be made to all those stockholders who are registered on a particular “recorded-date”. Two weeks later, dividend cheques are mailed to stockholders. 2.4 DIVIDEND ANNOUNCEMENTS AND STOCK RETURNS One of the earliest studies in this direction was by Petit (1972) who found that the market made use of dividend change announcements in pricing securities. Rozeff and Kinney (1976) explain that since firms release more information to the public in the month of January, above-normal returns in the month of January can be attributed to this increased inflow of information by firms to the market. Gordon (1959, 1962), Foster and Vic -kery (1978) and Lee (1995) confirm positive abnormal returns to dividend payment announcements. Contrary to the above studies, Easton and Sinclair (1989) find negative abnormal

returns, that is, a negative reaction by stock prices to dividend announcements; this is normally attributed to the tax effect of dividends for shareholders. Baker and Powell (1999) point out that manager sought to avoid making changes in their dividend rates that might have to be reversed within a year or so. Therefore, they (managers) tended to make partial adjustments towards a target payout ratio rather than dramatic changes. Lonie, et al (1996) investigates the dividend announcements of 620 U.K companies from January to June 1991 using event study and interaction tests. They found that investors responded to increase or decrease in dividends. However, their findings also reveal that, even for companies with no change in dividends, the average abnormal returns one day prior to the announcements were significantly different from zero as indicated by the statistic. Below and Johnson (1996) also fail to support the semi-strong form of market efficiency for 30 Source:

http://www.doksinet the US equity market. Adelegan (2003) conducted a study to analyze the reaction of stock prices to dividend announcements and capital market efficiency in Nigeria. He uses the standard event study methodology to test the semi-strong form of market efficiency and finds that the Nigerian stock market was inefficient in its semi-strong form. Uddin and Chowdhury (2005) investigated dividend announcements on the Dhaka Stock Exchange. They find that there were no statistically significant abnormal returns and that dividend had no information content for stock returns and prices in the Dhaka Stock Exchange. Gunasekarage and Power (2006) also found that dividend announcements influence stock returns at the time of announcements, but that the short-term influence of dividend announcements had no long-term implications. In the long run, firms with current reductions in dividends earned excess returns. Kong and Taghavi (2006) analyze earnings announcements for the Chinese

equity markets. They use the M-EGARCH approach to model changes in stock returns with event study methodology and reject the semi-strong form of market efficiency on the basis of their findings. Acker (1999) investigates the impact of dividend announcements on stock volatility rather than stock returns and finds that stock volatility increases around dividend announcements, particularly final dividend announcement when there is a dividend cut. Bhana (1997) suggested that there is a significant increase in a company’s share price at the announcement and that, in general, this upward revision of the company’s value cannot be attributed to other contemporaneous announcements, share dividends may be an effective signaling device and, in the presence of information asymmetries between managers and investors, share dividends provide a relatively inexpensive and unambiguous signaling device. Hussain (1998, 1999), Chakraborty (2006), and Ali and Akbar (2009) investigate the weak form of

market efficiency in the Pakistani equity market. Ali and Mustafa (2001) examine the semi-strong form of market efficiency in the Karachi Stock Exchange (KSE) by analyzing public news in two daily newspapers and the changes in trade volume and stock returns. They conclude that public information did not play an important role in the 31 Source: http://www.doksinet determination of stock returns since stock returns appeared more sensitive to private information. 2.5 DIVIDEND POLICY AND ASYMMETRIC INFORMATION In a symmetrically informed market, all interested participants have the same information about a firm, including managers, bankers, shareholders, and others. However, if one group has superior information about the firm’s current situation and future prospects, an informational asymmetry exists. Most academics and financial practitioners believe that managers possess superior information about their firms relative to other interested parties. Dividend changes (increases and

decreases), dividend initiations (first time dividends or resumption of dividends after lengthy break), and elimination of dividend payments are announced regularly in the financial media. In response to such announcements, share prices usually increase following dividend increases and dividend initiations, and share prices usually decline following dividend cuts and dividend eliminations. The idea that dividend policy can signal a firm’s prospects seems to be well accepted among the chief financial officers (CFOs) of large US corporations (Amihud and Li, 2005). Information about the prospects of a firm may include the firms current projects and its future investment opportunities. The firms dividend policy, either exclusively or in combination with other signals such as capital expenditure announcements or trading by insiders, may communicate this information to a less informed market. Empirical studies in this area, including Bhattacharya model (1979), John and Williams’s model

(1985), and Miller and Rock Model (1985), documented that announcement of dividend increases are followed by significant price increase and that announcements of dividend decrease are followed by significant price drops. These studies of large changes in dividend policyAsquith and Mullins (1983) (dividend initiations), Healy and Palepu (1988), and Michaely, et al (1995) (dividend omissions)-showed that the market react dramatically to such announcements 32 Source: http://www.doksinet Empirical studies, however, showed mixed evidence, using data from US, Japan and Singapore markets. A number of studies found that stock prices have a significant positive relationship with dividend payments (Gordon (1959), Oggden (1994), Stevents and Jose (1989), Kato and Loewenstein (1995), Ariff and Finn (1986), and Lee (1995), while others Loughlin (1982) and Easton and Sinclair (1989) found a negative relationship. Dividends are meant to convey private information to the market; predictions about

the future earnings of a firm based on dividend information should be superior to forecasts made without dividend information. A number of studies (Benartzi, et al 1997, etc) have tested these implications of the information content of dividends and suggested that dividend changes provide information about current and past levels of earnings. (Grullon, et al 2002) observed that consistent with changes in dividend signaling a decrease in the firm’s systematic risk. Although it is well known that stock prices react when firms unexpectedly announce changes in dividends (Asquith, et al 2003), the evidence generally does not support the idea that unexpected changes in dividends provide information about future earnings. Ghosh, et al (2004), in their study, investigated those earnings per share and dividend per share series are tested for the existence of an equilibrium long-run relationship. They observed that earnings per share are co-integrated with dividend per share. It is believed

that investors, corporations, analysts and others can benefit by using this frame work in developing their investment, financing, portfolio management and trading strategies. Garret and Priestly (2000), and Ali-Shah, et al (2010) found no evidence to support the notion that dividends can signal future permanent earnings. Ali and Chowdhury (2010) observed that announcement of dividend generated no significant impact on the movement of the stock prices. Foerster and Sapp (2006) found weak evidence that information regarding future earnings is transmitted by dividends, as well as evidence of a relationship between prices and future dividends. Bessler and Nohel (2000) found that dividend cuts induce negative abnormal returns in the stocks of non-announcing money center banks and, to a lesser extent, in the stock of large regional banks. Okpara (2010) is of the view that information asymmetry in the stock market occurs when one or more investors posses private information about the

firm’s value while other 33 Source: http://www.doksinet investors are uninformed. The study investigated the long-run effect of this dichotomy of information on dividend policy and found that dividend policy is a positive and significant function of information asymmetry. Abosede and Oseni (2011) noted that direct proxies of information asymmetry produce verifiable and less subjective outcomes than proxies derived from data manipulation; therefore, identifying and selecting the firm and market specific proxies require the understanding of the firm and market dynamics that impact significantly on equity pricing. Kapoor (2008) observed that Information Technology firms have a very high liquidity and it is an important determinant of dividend policy. Since the profitability of the companies is also very high, even if there is year to year variability in the earnings of the firms, they can easily pay huge dividends. 2.6 STOCK PRICES AND DIVIDEND ANNOUNCEMENTS The Efficient Market

Hypothesis proposed by Fama (1965) suggests three types of market efficiency: (i) weak, (ii) semi-strong, and (iii) strong. The weak form of market efficiency proposes that current stock prices reflect all past information. It also suggests that changes in stock prices are random and no investment strategy that is based on past information can yield above average returns to the investor. This implies that technical analysis will not be re warded with above average returns. The semi-strong form of market efficiency (information efficiency) proposes that current stock prices incorporate material public information and changes in stock prices will only lead to unexpected public information. This suggests that fundamental analysis will not be rewarded with above average returns. Finally, the strong form of market efficiency proposes that insider trading will not be rewarded as current stock prices incorporate all material non-public information (Reilly and Brown, 2006). Market efficiency,

however, does not simply occur by itself or because information is freely and timely available in the market. As Osei (1998) suggests, it depends heavily on the analytical and interpretational abilities of those who trade in the market, and the time they have and are ready to devote to obtaining and spreading price-sensitive information. The semi-strong form of market efficiency study methodology. Information has disclosures mostly related been to investigated dividends using and event earnings announcement, macroeconomic variables, stock repurchase announcements, mergers 34 Source: http://www.doksinet and acquisitions, etc; have been investigated in different studies to test the semi-strong form market efficiency. Grinblatt, et al (1984) provide evidence that stock prices, on average, react positively to stock dividend and stock split announcements that are uncontaminated. Vaughan and Williams (1998) suggested that dividend changes in future income after the reduction in

the tax penalty on dividends and an evidence that firms engage in tax-based signaling when the tax wedge between distribution methods is sufficiently high. Guay and Harford (1999) observed that stock price reactions to the announcements of both repurchase and dividend increases indicate that information in a payout announcement is not only the size of the payout, but also the method used to distribute the cash. Controlling for the size of the payout and the markets assessment of the permanence of the cash-flow shock, dividend increases are associated with a higher stock price reaction than repurchases. Fuei (2010) pointed out that changes in dividend policy provide statistically significant information about future earnings, with unanticipated increases in dividend payout leading to positive and permanent increases in future real earnings. Borges (2008) suggested that shareholders use their rights to force firms to pay dividends, especially if they believe that growth opportunities are

low. In the next few years, it will be very interesting to see if these theories agree with new empirical evidence. If they do, then, may be, we have found the new paradigm that will replace the irrelevance proposition of Miller and Modigliani (1961) and definitely resolve the “dividend puzzle”. Yeh, et al (2011) results indicate that, the announcement effects are significantly negative when firms cut their dividends, future operating performance, research and development of a cash dividend decrease is lower than those of a cash dividend increase and announcement effects of increasing or decreasing cash dividends have a positive relationship between corporate performance and cash dividend changes. Akbar and Baig (2010) studied the effect of dividend announcement on stock prices. Results of their study showed that announcement of dividends either cash dividend or stock dividend or both, have positive effect on stock prices. 35 Source: http://www.doksinet 2.7 STOCK PRICES,

DIVIDENDS AND SEMI-STRONG MARKET EFFICIENCY Although there is abundant theoretical and empirical research on the relevance of and relationship between stock prices and dividends, it is inconclusive. Graham and Dodd (1951) point towards the relevance of and, hence, investors’ preference for dividends, Black and Scholes (1974) studied the effect of dividend policy on stock prices and found that dividend policy does not affect stock prices. It depends on the investors’ decision to keep either high or low yielding securities; returns earned by them in both cases remain the same. Baskin (1989) found an inverse relation between stock prices and dividend policy. Contrary to this, Miller and Modigliani (1961) propose that, in a world of no taxes and transaction costs, dividends are irrelevant to investors. However, empirical research has revealed findings that support the relevance of the dividend proposition. In his seminal investigation of dividends policy, Lintner (1956) suggests that

a firm’s management will resort to increasing dividends if it believes that the increase will be permanent. Bhattacharaya (1979) explains that there exists asymmetric information between a firm’s management and its shareholders: hence, an increase or decrease in dividends conveys price-sensitive information to shareholders and prospective investors. Miller and Rock (1985) and John and Williams (1985) also support the signaling or information content proposition. Brickley (1983), Healy and Palepu (1988), and Aharony and Dotan (1994) find support for the information content of dividend hypothesis while Penman (1983) and Benartzi, et al (1997) fail to do so. Black (1976) and Easterbrook (1984) propose that dividends play a role in decreasing or increasing agency conflict between management and shareholders. When a firm’s management increases dividends to shareholders, it pays out any excess cash that is left with the firm after funding all projects that have positive net present

values. Therefore, positive changes in stock prices occur as a result of an increase in the dividend payment and vice versa. Given this background on the relevance of dividend-for-stock prices, the semi-strong form of market efficiency postulates that stock prices incorporate all expected future dividends (cash and stock) and that, hence, their public announcement should not result in abnormal earnings for any investor because such dividends are fully accounted for in current stock 36 Source: http://www.doksinet prices. This implies that stock returns prior to the announcement date and after the announcement date should not exhibit abnormality. Therefore, both abnormal mean returns and cumulative abnormal mean returns in the event window should be statistically not different from zero. Also the semi-strong form suggests that stock prices rapidly adjust to any unexpected material (in this context, unexpected increases or decreases in dividends) information 2.8 STOCK SPLITS ON PRICE

AND LIQUIDITY Stock splits remain one of the puzzling anomalies in the behavior of stock prices and stock liquidity since they are only nominal changes in stock price denominations that have no impact on investors’ fraction of equity ownership. However, previous studies have documented positive price performance subsequent to splits. Grinblatt, et al (1984) and Lamoureux and Poon (1987) supported the signaling hypothesis that firms use stock splits to signal future positive earnings. The alternative liquidity and trading range hypothesis comes from management claims that the motivation for split activities is to bring stock prices down to a preferred trading range and improve liquidity. Yet existing empirical research, finds that the impact of split on liquidity is mixed. Copeland (1979), Conroy, et al (2000), and Desai, e t al (1998), find that bid ask spreads increase, indicating worsened liquidity. Other authors (Lamoureux and Poon (1987), Muscarella and Vetsuypens (1996) show

that number of trades per day increases subsequent to splits. Lakonishok and Lev (1997) find that splits have no impact on split-adjusted trading volume. The inconclusive evidence reflects the challenge in the selection and in the interpretation of the liquidity proxy. Some researchers find that stock split will increase the stock price around the announcement date. Companies conduct stock split when the stock price increases but, on the other hand, reverse stock split is conducted when the stock price decreases. Stock split increases the investor perception about the future earning, and reverse stock split, on the other hand decreases. As a corporate action, stock split will influence the stock price and finally have impact to the stock return. Johnson (1966) found increasing stock price after stock split. He compares the stock price 75 months before split and 45 months after split. Grinblatt, et al (1984) found abnormal return 3 days after stock split announcement 37 Source:

http://www.doksinet Fama, et al (1969) found that stocks returns give 30% abnormal return two years after stock splits. Some researchers observed the variables that influence stock returns Asquit, et al (1989) observes change in EPS does not have effect to abnormal return. 2.9 CORPORATE DIVIDEND POLICY DETERMINANTS Black (1976), in his study, concluded with the following question and answer: “What should the corporation do about dividend policy? We don’t know”. A number of factors have been identified in previous empirical studies to influence the dividend policy decisions of the firm. Profits have long been regarded as the primary indicator of the firm’s capacity to pay dividends. Lintner (1956) conducted a classic study on how US managers make dividend decisions. He developed a compact mathematical model, based on a survey of 28 wellestablished industrial US firms, which is considered to be a finance classic According to him the current year earnings and previous year

dividends influence the dividend payment pattern of a firm. Fama and Babiak (1968) studied the determinants of dividend payments by individual firms during 1946-64. The study concluded that net income seems to provide a better measure of dividend than either cash flows or net income and depreciation included as separate variables in the model. Farrelly, et al (1986) surveyed 318 New York stock exchange firms and concluded that the major determinants of dividend payments are anticipated level of future earnings and pattern of past dividends. Pruitt and Gitman (1991) asked financial managers of the 1000 largest U.S firms and reported that current and past year’s profits are important factors influencing dividend payments. They also found that risk (year- to-year variability of earnings) also determine the firms’ dividend policy. Baker and Powell (2001) concluded from their survey of NYSE-listed firms that dividend determinants are industry-specific, and that anticipated level of

future earnings is the major determinant. In other studies, D’Souza (1999) also found statistically significant and negative relationship between beta and dividend policy. He however showed a positive but insignificant relationship in the case of growth and negative but insignificant relationship in case of market to book value. Alli, et al (1993) reveal that dividend payments depend more on cash flows, which reflect the company’s ability to pay dividends, than on current 38 Source: http://www.doksinet earnings, which are less heavily influenced by accounting practices. The results however, do not support the views of Miller and Modigliani (1961). Higgins (1972), Fama (1974) documented no interdependence between investments and dividends. Higgins (1981) indicated a direct link between growth and financing needs: rapidly growing firms have external financing needs because working capital needs normally exceed the incremental cash flows from new sales. Rozeff (1982), Lloyd, et

al (1985) and Collins et al (1996) all show significantly negative relationship between historical sales growth and dividend payout. Mohammed and Joshua (2006) examined the factors affecting dividend policy of listed compsanies in Ghana. Their results showed that dividends were positively related to profitability, cash flow and tax, but are negatively related risk and growth. Nishat and Irfan (2005) studied the effect of dividend policy on stock price risk and found that dividend yield and earnings are positively related to the share price volatility. This relation remains the same even after controlling for firm size. Another study conducted by Naeem and Nasr (2007) observed the determinants and trends of dividend policies. Results of their study show that Pakistani companies are either reluctant to pay dividends or pay very low amount as dividends and their current dividend decisions depend on previous year dividends and profitability ratio. The study conducted by Ahmed and Javid

(2009) in which they analyzed the factors that determine dividend policy in the economy of Pakistan showed that most of the Pakistani companies decide their cash dividend payment on the basis of their current and previous year profits. The firms having high net profit pay larger dividends to their shareholders. Their results showed that market liquidity is positively related to the dividend payout ratio and negative relationship was found between the firm size and payouts, while there is no relationship between growth opportunities and dividend policy. Nazir, et al (2010) explained the role of dividend policy in Pakistan by taking a sample of 73 companies listed on the Karachi Stock Exchange from the period of 2003 2008. Result of their study showed that dividend payout and dividend yield have significant effect on stock prices while size and leverage have negative insignificant affect. Earnings and growth have positive significant affect on stock prices. 39 Source:

http://www.doksinet 2.10 SHAREHOLDERS EARNINGS (EPS) AND THE FIRM As submitted by Opler, et al (1997), the financial structure decisions offer opportunities for firms to create value for shareholders, yet, these opportunities are often neglected because of the difficulty, especially for companies with complex liquidity structures, in identifying and quantifying the factors on the left hand side of the balance sheet that affect shareholders value. They note that corporate executives often have a general sense of whether the overall financial structure is “about right” but lack the tools that would enable them assess alternative liability structure, thus, as a practical matter, liability decisions are often based on partly cosmetic consideration and insistence on strict adherence to all rating agency guidelines, benchmarking against competitors and concern about the effect of financing on EPS. Hyderabad (1997) agreed that the use of debt as a source of capital presents significant

problems to business managers through, firstly, they must select that form of debt with the lowest explicit cost and least damaging impact on the firm and its stockholders through variability in EPS and, secondly, they must assemble a total financial structure which is composed of the least cost mix of both debt and equity capital. However, Patra (2005) sates that the proportion of debt in the optimal financial structure will be less than the proportion of debt needed to maximize earnings per share because the market valuation of the stock considers the risk associated with the firm’s operations expected well into the future and EPS is only based on the firm’s operations expected for the next few years. Earnings per share (EPS) can be described as the reward of an investor for making his investment and it is the best measure of performance of firm (Patra, 2005). The above definition of EPS and its importance were highlighted by Hyderabad (1997) when he said that the bottom line of

income statements are as indicators of performance of think tank or top level management of the company. Ordinary investors lacking in-depth knowledge and inside information mainly based their decisions on EPS to make their investment decision, so it should be the objective of financial management to maximize the EPS from the point of view of both the investor and invitee. Thus, to him, the objective of financial management of maximization of value measured in terms of market price of equity share of a corporate entity is misplaced. 40 Source: http://www.doksinet Pandey (2005) stated that given the objective of the firm to maximize the value of equity share of the firm, management should select a desired combination of financing mix or financial structure that will achieve the goal as stated by Patra (2005). Theoretically, optimum financial structure implies that combinations of debt and equity should be at the level where overall cost of capital is low and the value of the firm is

high. Therefore, the prevailing view is that the value maximization criterion as a criterion of optimal financial structure is measured in terms of market price of equity share, that is, the value of the firm is maximized when the market price of equity share is maximized. According to this view, maximization of the market price of equity share, leading to the maximization of value of the firm, is a criterion for optimum financial structure. Contrary to the above view, according to Patra (2005), is that the market price of equity share should basically depend on the firm’s earnings per share as the EPS valuation depends to a great extent, on many external factors such as government monetary and economic policies, political stability, state of the economy, speculative trends, etc. Thus, it may be contended that market price of share has no direct bearing on the optimum financial structure. He also agreed that since the financial structure decision is an internal decision of the firm,

an increase in market price of shares should not be a criterion for optimum financial structure. Compsey and Brigham (1985) agreed with the above argument and assert that EPS may be a better substitute as a criterion of value maximization in respect of optimum financial structure. As such, maximizing EPS should be the main aim of a firm in order to realize the objective of maintaining an appropriate financial structure. Compsey and Brigham (1985) totally agree with the above argument and assert that EPS may be a better substitute as a criterion of value maximization in respect of optimum financial structure. Servaes and Tufano (2006) supported Patra (2005) and Compsey and Brigham (1985) view when they declared that earnings per share, while irrelevant from a strictly theoretical perspective, are often actively managed by firm and debt has an impact on the level and volatility of EPS. 41 Source: http://www.doksinet REFERENCES Abosede, A. J and Oseni, J E (2011), “Theoretical

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(2005), “Effect of Dividend Announcement and Shareholders’ Value: Evidence from Dhaka Stock Exchange”, Journal of Business Research, Vol.7, pp 61-72 Vaughan, M. D and Williams, M G (1998), “Dividends, Stock Repurchases and Signaling: Evidence from US Panel Data”, Working Paper, Federal Reserve Bank of St. Louis, May, pp 1-26. Walter, J. E (1963), “Dividend Policy; It influence on the Value of the Enterprise”, Journal of Finance, Vol. 1 May, pp 280-291 Yeh, C. T, Liou, Y H and Lin, H K (2011), “The Information Content of Dividend Change at the Annual Shareholders Meeting”, International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 70, pp 68-80. 50 Source: http://www.doksinet CHAPTER THREE RESEARCH METHODOLOGY 3.1 RESEARCH DESIGN Research design is a kind of blueprint that guides the researcher in his or her investigation and analyses. The researcher’s inability to manipulate already existing variables is a basic feature of ex-post facto

research design (Onwumere, 2009). Kerlinger (1970) posit that the ex-post facto research design is also called causal comparative research and is used when the researcher intends to determine cause-effect relationship between an independent and dependent variables with a view to establishing a causal link between them. It contains a description of methods and procedure employed in data collection, design and validation of test instrument. It x-rays the format employed by the researcher in order to systematically apply the scientific methods in problem investigation. The domain of this study is the stock prices. The study focuses on the impact of dividend policy and earnings on the stock prices of Nigeria Banks. Therefore, this study adopts the choice of the ex-post facto research design. This type of research design can be useful where survey is descriptive or explanatory. These research techniques have been employed because of its suitability in research survey of this nature. 3.2

NATURE AND SOURCES OF DATA This study relied extensively on secondary data which was handpicked from the annual report and statement of account of selected banks listed on the Nigerian Stock Exchange for the period. Price data was taken from the Daily Official List and Statistical Bulletin of the Nigerian Stock Exchange over earlier specified five-year period. 3.3 POPULATION AND SAMPLE SIZE The population of the study consists of all the quoted banks in Nigeria. A research sample is a representative number of respondents taken from a population (Orji, 1996). The research sample in this study was determined on the availability of data from the quoted banks in the Nigeria Stock Exchange. 51 Source: http://www.doksinet 3.4 MODEL SPECIFICATION Summary statistics for the variables was calculated. The analysis utilized panel data generalized least squares regression. The most basic test involved regresssing the dependent variable, stock price against the three independent variables:

dividend yield, earnings yield and payout ratio in line with works of Nishat and lrfan (2003. This provided a crude test of the relationship between stock prices and dividend policy. Thus, in line with the various hypotheses stated, the models were as follows: For hypothesis one which states that dividend yield does not have positive and significant impact on stock prices of Nigerian banks. It was represented as: SP= a + b 1 DY + e. (i) where SP DY a b1 e = = = = = Stock Prices Dividend yield Regression Constant Regression Coefficient Error Term For hypothesis two which states that earnings yield does not have positive and significant impact on stock prices of Nigerian Banks. It was represented as: SP= a + b 1 EY + e. (ii) where SP EY a b1 e = = = = = Stock Prices Earnings yield Regression Constant Regression Coefficient Error Term Lastly for hypothesis three which states that dividend payout ratio does not have positive and significant impact on stock prices of Nigeria

banks It was represented as: SP= a + b 1 POR + e. (iii) where SP PR a b1 e = = = = = Stock Prices Payout Ratio Regression Constant Regression Coefficient Error Term 52 Source: http://www.doksinet The expectation was that the DY, and POR variables would be negatively related to SP whilst EY, MC and BKS and would be positively related to SP. That is, increases in dividend yield and payout ratio will be associated with a decrease in the volatility of the firm’s stock price. By contrast, firms with relatively higher earnings volatility or higher leverage will tend to display higher price volatility. 3.5 Model Justification This research work was based on the methodology of the Nishat and Irfan (2003) who examined the impact of dividend policy and stock price volatility in Pakistan. A sample of 160 listed companies in Karachi Stock Exchange was examined for a period from 1981 to 2000. The empirical estimation was based on a panel data regression analysis of the relationship

between stock price volatility and dividend policy after controlling for firm size, earning volatility, leverage and asset growth. Both dividend policy measures (dividend yield and payout ratio) have significant impact on the share price volatility. The relationship was not reduced even after controlling for the above mentioned factors. This suggests that dividend policy affect stock price volatility and it provides evidence supporting the arbitrage realization effect, duration effect and information effect in Pakistan. The responsiveness of the dividend yield to stock price volatility increased during reform period (1991-2000). Whereas payout ratio measure was having significant impact only at lower level of significance, in overall period the size and leverage had positive and significant impact on stock price volatility. The size effect was negative during the pre-reform period (1981-1990) but positive during the reform period. The earnings volatility impact was negative and

significant only during the reform period. Although the results were not robust enough as in the case of developed markets, it was consistent with the behavior of emerging markets. In this work, earnings yield was used as one of the independent variable unlike in Nishat and Irfan (2003) where it was used as a control variable. The justification was based on the perception of investors on the importance of earnings as a signal of growth (Baskin, 1989). 53 Source: http://www.doksinet 3.6 DESCRIPTION OF RESEARCH VARIABLES The variable for this are divided into dependent and independent variables. 3.61 Dependent Variable Stock Price (SP) Stock prices refer to market price of the common stock as determined at the dealing session. Stock prices were measured by summing up all the stock prices for each month for a year by the stock price in a year. (Nishat and Irfan, 2003) Stock Price = Stock P 1 + sp 2 + sp 3 .+sp 12 12 3.62 Independent Variables Dividend yield (DY) This is the

ratio of cash dividend per share to the current market price per share. Dividend yield was used to calculate the earnings on investment (shares) considering only the returns in the form of total dividends declared by the company during the year (Nishat and Irfan, 2003). Dividend Yield = Dividend Per Share Market Per Share Earning Yield (EY) This is the ratio of the earnings per share to the current market price of the stock. The earnings yield can be used to compare the earnings of a stock, sector or the whole market against bond yields (Nishat and Irfan, 2003). Earnings Yield = Earnings Per Share Market Price Share Payout Ratio (POR) Payout is the ratio of dividends per share to earnings per share. The use of this procedure controls the problem of extreme values in individual years attributable to low or possibly negative net income. 54 Source: http://www.doksinet The payout ratio is set to one in cases where a total dividend exceeds total cumulative profits (Nishat and Irfan,

2003). Payout Ratio = 3.63 Dividend per share Earnings per share Control Variables Control Variables are other factors that are likely to influence both dividend yield and earnings yield. Share price should be related to the basic risks encountered in the firms product markets. Market risk may also have impact on the firms dividend policy Therefore, this work included a control variable to account for the variability in the firms earnings stream. Market Concentration (MC) Market concentration is a function of the number of firms and their respective shares of the total production in a market. The market concentration ratio is a measure of the total output produced in an industry by a given number of firms in the industry and it was used in this study as a sign of the nature of the banking industry degree of competitiveness vis a vis the market in Nigeria. In line with the works of Tushaj (2010), the concentration ratio of the banking industry as a proportion of the overall

performance of the market were adopted as a control variable. Market Concentration = Total Market Capitalization of Bank A Total Market Capitalization of all the Banks in a Year Bank Size (BZ) The log of total assets was used to proxy bank size and it measured the assets of each bank or the financial institutions for the years under review (Nishat and Irfan, 2003). 3.7 TECHNIQUES OF ANALYSIS The hypotheses stated were tested using the multiple regression models. The idea behind regression analysis is the statistical dependence of one variable, the dependent variable, on one or more variables, the independent or explanatory variables. The objectives of such analysis are to estimate or predict the mean or average value of the dependent variable on the basis of the known or fixed values of the explanatory variables (Gujarati and Porter, 2009). The general form for a multiple regression analysis was as follows: 55 Source: http://www.doksinet Y= a + b 1 X 1 + b 2 X 2 + b 3 X 3 + b 4

X 4 b n X n + e (3) where Y a b1 bn X1 Xn e = = = = = dependent variable equation constant coefficients of explanatory variables independent or explanatory variables error term In this particular equation, the constant b 1 b n determines the slope or gradient of that line and the constant term “a” determines the point at which the line crosses the Yaxis, otherwise known as the Y-intercept (Gujarati and Porter, 2009). 56 Source: http://www.doksinet REFERENCES Baskin, J. (1989) ,“Dividend Policy and the Volatility of Common Stock”, Journal of Portfolio Management, Vol. 15 No 3 pp 19-25 Gujarati, D. N and Porter, D C (2009), Basic Econometrics International Edition, Singapore: McGraw-Hill. Kerlinger, F. N (1973), Foundations of Behavioural Research Techniques in Business and Economics Eleventh Edition, Boston: McGraw Hill Irwin. Nishat, M. and Irfan, C M (2003),“Dividend Policy and Stock Price Volatility in Pakistan”, Saving and Development, No.3, XVIII Onwumere, J.

U J (2005), Business and Economic Research Method, Enugu: Vagessen Limited. Orji, J. I (1996), Business Research Methodology, Enugu: Metesor Press Limited Tushaj, A. (2010),”Market Concentration in the Banking Industry”: Evidence from Albania, Working Paper. No 73 pp 1-32 57 Source: http://www.doksinet CHAPTER FOUR DATA PRESENTATION AND ANALYSIS 4.0 INTRODUCTION In this chapter, data for the study, sourced from the annual report of banks and the Daily Official List of the Nigeria Stock Exchange were presented, tested and analysed. The data collected were organized and used for testing the hypotheses. From the analysis and results generated, deductions and logical conclusions were obtained. Descriptive statistics of all the variables were also presented and analysed. The variables for the study include stock prices, as the dependent variable and dividend yield, earnings yield and payout ratio as the independent variables. The sample size which was twenty-one (21) banks for

five (5) years 2006-2010 was reduced to twenty (20) banks due to unavailability of data (see, appendix). 4.1 DATA ANALYSIS The analyses are based on the descriptive statistic of our model. Table 41 is used to explain the behavior of our model proxies (see, appendix for the absolute values of the model proxies). Table 4.1 Descriptive Statistics SP Mean 11.29757 Median 7.841667 Maximum 40.97333 Minimum 1.0675 Std. Dev 9.599503 Skewness 1.402819 Kurtosis 4.406538 Jarque-Bera 38.16856 Probability 0 Observations 93 Source: E-view Results DYIELD 0.112908 0.033094 4.895928 0 0.518952 8.628409 79.41197 23779.27 0 93 EYIELD 1.406051 0.086538 35.11007 -4.54615 4.945637 4.618286 27.34995 2628.157 0 93 POR 0.51703 0.420543 3.512987 -0.375 0.655808 2.424382 10.63621 313.6517 0 93 MCONC 0.051349 0.040665 0.19502 0.000689 0.043299 1.431634 4.456504 39.98886 0 93 BKSIZE 11.55165 11.64757 12.29165 8.792252 0.545499 -2.5965 13.62981 542.345 0 93 Note: SP = Stock Price Dyield = Dividend Yield

Eyield = Earnings Yield Por = Payout Ratio Mconc = Market Concentration Bksize = Bank Size 58 Source: http://www.doksinet As indicated in tables 4.1 above, the mean value of stock prices of the 20 Nigerian commercial banks from 2006 to 2010 was N11.28k, while, the medium was N779k As revealed in table 4.1, First Bank Nigeria Plc recorded the highest annual stock prices within the period of this study. The stock price of First Bank Nigeria Plc in 2006 was N4097k while Unity Bank Plc had the lowest annual stock price of N1.07k which was observed in 2010. Overall the stock prices of Nigerian commercial banks within the period of this study showed consistent increase over the period of the study. As revealed from table 41, there was a positive skewness of stock prices (1.40) indicating that the degree of departure from symmetry of a distribution was positive, also Kurtosis value 4.37 > 3 which is the normal value revealed that the degrees of peakedness of stock prices within the

period of this study were normally distributed as it tends to hover around the mean. As indicated from tables 4.1, the mean value of dividend yield of the 20 Nigerian commercial banks from 2006 to 2010 was 0.11%, while, the medium was 003% The maximum dividend yield of 4.90% within the period of this study was recorded by Wema Bank Nigerian Plc in 2010. Overall the dividend yield of Nigerian commercial banks within the period of this study showed consistent increase over the period of the study. As revealed from table 4.1, there was a positive skewness of dividend yield (858) indicating that the degree of departure from symmetry of a distribution was positive, also Kurtosis value of 78.55 > 3 which is the normal value revealed that the degrees of peakedness of dividend yield within the period of this study were normally distributed as it tends to hover around the mean. As indicated from tables 4.1, the mean value of earnings yield of the 20 Nigerian commercial banks from 2006 to

2010 was 1.42%, while, the medium was 009% The maximum earnings yield of 35.11% within the period of this study was recorded by Unity Bank Nigerian Plc in 2010, while the least earnings yield was recorded by Bank PHB in 2009 (-4.55%) Overall the earnings yield of Nigerian commercial banks within the period of this study showed consistent increase over the period of the study. As revealed from table 4.1, there was a positive skewness of earnings yield (459) indicating that the degree of departure from symmetry of a distribution was positive, also Kurtosis value of 27.05 > 3 59 Source: http://www.doksinet which is the normal value revealed that the degrees of peakedness of earnings yield within the period of this study were normally distributed as it tends to hover around the mean. As revealed from table 4.1, the mean value of payout ratio of the 20 Nigerian commercial banks from 2006 to 2010 was N0.52k, while, the medium was N042k The maximum payout ratio of N3.51 within the

period of this study was recorded by Wema Bank Nigerian Plc in 2010, while the least payout ratio was recorded by Eco Bank in 2009 (N-0.38k) Overall the payout ratio of Nigerian commercial banks within the period of this study showed consistent increase over the period of the study. As revealed from table 41, there was a positive skewness of earnings yield (2.42) indicating that the degree of departure from symmetry of a distribution was positive, also Kurtosis value of 10.64 > 3 which is the normal value revealed that the degrees of peakedness of payout ratio within the period of this study were normally distributed as it tends to hover around the mean. For the control variables, it was revealed from table 4.1 that the mean value of market concentration of the 20 Nigerian commercial banks from 2006 to 2010 was N0.05k, while, the medium was N0.04k The maximum market concentration of N0195k within the period of this study was recorded by Fidelity Bank Nigerian Plc in 2010, while the

least market concentration was recorded by First Bank Nigeria Plc in 2007 (N0.0007k) Overall the market concentration of Nigerian commercial banks within the period of this study was consistent increase over the period of the study. As revealed from table 41, there was a positive skewness of market concentration (1.41) indicating that the degree of departure from symmetry of a distribution was positive, also Kurtosis value of 4.40 > 3 which is the normal value revealed that the degrees of peakedness of market concentration ratio within the period of this study were normally distributed as it tends to hover around the mean. Lastly it was revealed from table 4.1 that the mean value of bank size ratio of the 20 Nigerian commercial banks from 2006 to 2010 was N11.55k, while, the medium was N11.65k The bank with the highest bank size ratio of N1229k within the period of this study was recorded by First Bank Nigerian Plc in 2010, while the least bank size ratio was recorded by Union Bank

Nigerian Plc in 2007 (8.79k) Overall the bank size ratio of 60 Source: http://www.doksinet Nigerian commercial banks within the period of this study was not consistent increase over the period of the study. As revealed from table 41, there was a negative skewness of bank size ratio (-2.58) indicating that the degree of departure from symmetry of a distribution was negative, also Kurtosis value of 13.47 > 3 which is the normal value revealed that the degrees of peakedness of bank size ratio within the period of this study were normally distributed as it tends to hover around the mean. 4.2 TEST OF HYPOTHESES For this study, three steps were adopted to test the hypotheses stated. In step one, the hypotheses was stated in null and alternate forms. In step two, the regression results were analysed and step three, the decision. 4.21 Test of Hypothesis One Step One: Restatement of Hypothesis in Null and Alternate form: Ho 1 : Dividend yield does not have positive and significant

impact on stock prices of Nigerian banks. Ha 1 : Dividend yield have positive and significant impact on stock prices of Nigerian banks. Step Two: Analysis Regression Result Table 4.3 presents the regression results Table 4.2 Regression Result of Hypothesis One Dependent Variable: SP Method: Least Squares Included observations: 93 Variable Coefficient Std. Error t-Statistic DYIELD -3.365192 1.575960 -2.135328 MCONC -112.1061 19.18778 -5.842579 BKSIZE 3.620401 1.520690 2.380762 C -24.38751 17.80417 -1.369764 R-squared 0.759063 Mean dependent var Adjusted R-squared 0.637458 S.D dependent var S.E of regression 7.813677 Akaike info criterion Sum squared resid 5433.766 Schwarz criterion Log likelihood -321.1134 F-statistic Durbin-Watson stat 1.449165 Prob(F-statistic) Source: E-view Results Prob. 0.0355 0.0000 0.0194 0.1742 11.29757 9.599502 6.991687 7.100616 16.61970 0.000000 61 Source: http://www.doksinet As revealed from table 4.2, dividend yield had negative and significant impact

on commercial banks’ stock prices in Nigeria (coefficient of Dyield = -3.365; p-value = 0035) Also, for the control variables, market concentration of Nigerian commercial banks had negative and significant impact on stock prices of Nigerian commercial banks (coefficient of Mconc = -112.106; p-value = 0000), while bank size had positive and significant impact on stock prices of Nigerian commercial banks (coefficient of Bksize = 3.620; p-value 0019) The coefficient of determination which measures the goodness fit of the model as revealed by R-square (R2) indicates that 75.9% of the variations observed in the dependent variable were explained by variations in the independent variable. This was adjusted by the Adjusted R-Square to 63.7%, indicating that the dependent variable was explained in variations in the independent variable. Step Three: Decision Based on the result of the hypothesis tested, the null hypothesis is accepted while the alternate hypothesis rejected. Thus, dividend

yield does not have positive and significant impact on stock prices of Nigerian banks. This is in line with the works of DeAngelo, et al (2003). 4.22 Test of Hypothesis Two Step One: Restatement of Hypothesis in Null and Alternate form: Ho 2 : Earnings yield does not have positive and significant impact on stock prices of Nigerian banks. Ha 2 : Earnings yield have positive and significant impact on stock prices of Nigerian banks. Step Two: Analysis Regression Result Table 4.3 presents the regression results 62 Source: http://www.doksinet Table 4.3 Regression Result of Hypothesis Two Dependent Variable: SP Method: Least Squares Included observations: 93 Variable EYIELD MCONC BKSIZE C R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Source: E-view Results Coefficient -0.331065 -108.4813 3.842394 -27.05250 0.734310 0.673245 7.836515 5465.576 -321.3849 1.147148 Std. Error t-Statistic 0.165221 -2.003771 19.18598 -5.654195

1.522954 2.522988 17.81388 -1.518619 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) Prob. 0.0481 0.0000 0.0134 0.1324 11.29757 9.599502 6.997524 7.106453 16.35031 0.000000 As revealed from table 4.3, earnings yield had negative and significant impact on commercial banks’ stock prices in Nigeria (coefficient of Eyield = -0.331; p-value = 0048) Also, for the control variables, market concentration of Nigerian commercial banks had negative and significant impact on stock prices of Nigerian commercial banks (coefficient of Mconc = -108.481; p-value = 0000), while bank size had positive and significant impact on stock prices of Nigerian commercial banks (coefficient of Bksize = 3.842; p-value 0013) The coefficient of determination which measures the goodness fit of the model as revealed by R-square (R2) indicates that 73.4% of the variations observed in the dependent variable were explained by variations in the independent

variable. This was adjusted by the Adjusted R-Square to 67.3%, indicating that the variation in the dependent variables was succinctly explained by variations in the independent variable. Step Three: Decision Based on the result of the hypothesis tested, the null hypothesis is accepted while the alternate hypothesis rejected. Thus, earnings yield does not have positive and significant impact on stock prices of Nigerian banks. This is in line with the works of Compsey and Brigham (1985). 63 Source: http://www.doksinet 4.23 Test of Hypothesis Three Step One: Restatement of Hypothesis in Null and Alternate form: Ho 3 : Dividend payout ratio does not have positive and significant impact on stock prices of Nigeria banks. Ha 3 : Dividend payout ratio has positive and significant impact on stock prices of Nigeria banks. Step Two: Analysis Regression Result Table 4.4 presents the regression results Table 4.4 Regression Result of Hypothesis Three Dependent Variable: SP Method: Least

Squares Included observations: 93 Variable POR MCONC BKSIZE C R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Source: E-view Results Coefficient -1.411019 -107.7532 3.841548 -26.82391 0.823545 0.713051 7.956296 5633.935 -322.7956 1.183245 Std. Error t-Statistic 1.269427 -1.111540 19.50537 -5.524283 1.546538 2.483966 18.08687 -1.483060 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) Prob. 0.2693 0.0000 0.0149 0.1416 11.29757 9.599502 7.027863 7.136792 14.97518 0.000000 As revealed from table 4.4, dividend payout ratio had negative and non-significant impact on commercial banks’ stock prices in Nigeria (coefficient of Por = -1.411; p-value = 0269) Also, for the control variables, market concentration of Nigerian commercial banks had negative and significant impact on stock prices of Nigerian commercial banks (coefficient of Mconc = -107.753; p-value = 0000), while bank size

had positive and significant impact on stock prices of Nigerian commercial banks (coefficient of Bksize = 3.842; p-value 0015) The coefficient of determination which measures the goodness fit of the model as revealed by R-square (R2) indicates that 82.3% of the variations observed in the dependent variable were explained by variations in the independent variable. This was adjusted by the Adjusted 64 Source: http://www.doksinet R-Square to 71.3%, indicating that variations in the dependent variable were explained by variations in the dependent variable. Step Three: Decision Based on the result of the hypothesis tested, the null hypothesis is accepted while the alternate hypothesis rejected. Thus, dividend payout ratio does not have positive and significant impact on stock prices of Nigerian banks. This is in line with the works of Baker and Powel (1999). 4.3 COMPARAISM OF RESULTS WITH OBJECTIVES In this section, the objectives of this study are compared with the findings of the

hypotheses tested as well as in line with studies in this area of finance. 4.31 Objective One: To determine the impact of dividend yield on stock prices of Nigerian banks Dividend yield is the ratio of cash dividend per share to the current market price per share and is used to calculate the earnings on investment (shares) considering only the returns in the form of total dividends declared by the company during the year. Despite extensive empirical testing of the above dividend hypotheses over the years, the conclusions are surprisingly varied, and a wide consensus on the corporate payout rationale is still lacking. On one hand, Nissim and Ziv (2001) found that using a particular model of earnings expectations, current dividend changes are positively correlated to future earnings changes hence the stock prices. On the other hand, other studies by Deanglo et al (2003) and Benartzi, et al (1997) has found negative correlation between dividend changes and stock prices. The

findings of this study support the opposite view that dividend yields do not have positive and significant impact on stock prices. This indicates that an increase in stock prices reduces the dividend accruable to investors. A common argument which must lead to this result is the tendency of rational investors to cash in on the increase in stock prices for capital gain through sales of shares. This is consistent with the works of Grullon, et al (2002) and DeAngelo, et al (2003). 65 Source: http://www.doksinet 4.32 Objective Two: To determine the impact of earnings yield on stock prices of Nigerian banks One of the best measures of reward to investors for making an investment in a firm is the earnings per share as a measure of performance of firm. The importance of EPS is highlighted by the income statements of firms. Ordinary investors lacking in-depth knowledge and inside information mainly based their decisions on EPS to make their investment decision, so it should be the

objective of financial management to maximize the EPS from the point of view of both the investor and potential investors. Thus, a higher EPS improves the earnings yield of the firm. Earnings yield is the ratio of the earnings per share to the current market price of the stock and is used to compare the earnings of a stock, sector or the whole market against bond yields. According to Patra (2005), the market price of equity share should basically depend on the firm’s earnings per share as the EPS valuation depends to a great extent, on many external factors such as government monetary and economic policies, political stability, state of the economy, speculative trends, etc. Thus, it may be contended that market price of share has no direct bearing on the optimum financial structure. He also agreed that since the financial structure decision is an internal decision of the firm, an increase in market price of shares should not be a criterion for optimum financial structure. Compsey and

Brigham (1985) agreed with the above argument and assert that EPS may be a better substitute as a criterion of value maximization in respect of optimum financial structure. Therefore, maximizing EPS should be the aim of the firm in order to realize the objective of maintaining an appropriate financial structure. The findings of this study however reveals that EPS does not have positive and significant impact on stock prices revealing that most Nigerian investors does not consider EPS as an important determinants of stock prices. According to Pandey (2005) EPS is a book value measure of the firm performance and as such does not have direct bearing on the market prices of shares. Therefore, the findings of this study support the views of Pandey (2005) 4.33 Objective Three: To determine the impact of dividend payout ratio on stock prices of Nigeria banks. According to Nwude (2003), the dividend policy of the firm guides the firm in determining the portion of a company’s net profit

after taxes to be paid out to the residual shareholders as dividend during a particular financial year; the purpose of a dividend policy being to 66 Source: http://www.doksinet maximize shareholders’ wealth, by which is dependent on both current dividend and capital gains. Thus the essence according to Emekekwue (2005), is to determine what portion of firms’ earnings that will be paid out as dividend or held back as retained earnings. Payout is the ratio of dividends per share to earnings per share. The use of this procedure controls the problem of extreme values in individual years attributable to low or possibly negative net income. The payout ratio is set to one in cases where a total dividend exceeds total cumulative profits. The transmission mechanism through which the dividend payout policies of firms are reflected on the stock prices is during announcement of dividend. One of the earliest studies in this direction was by Petit (1972), who found that the market made use of

dividend change announcements in pricing securities (see also, Gordon, 1959, 1962), Foster and Vickery (1978), Lee (1995). However, contrary to the above studies, Sinclair (1989) find negative abnormal returns, that is, a negative reaction by stock prices to dividend announcements; this is normally attributed to the tax effect of dividends for shareholders. This supports the findings of this study which indicates that dividend payout ratios of Nigerian commercial banks do not have positive and significant impact on stock prices. This is also in line with the works of Baker and Powell (1999), Lonie (1996). 67 Source: http://www.doksinet REFERENCE Baker, H. K and Powell, G E (1999), “How Corporate Managers view Dividend Policy?”, Quarterly Journal of Business and Economics, Vol. 38 No 2, pp 17- 35 Benartzi, S., Michaely, R and Thaler, R (1997), “Do Change in Dividends Signal the Future of the Post”, Journal of Finance, Vol. 52 No3, July, pp1007-1034 Compsey, B. J and

Brighman, EFC (1985), Introduction to Financial Management, New York: The Dryden Press DeAngelo, H., DeAngelo, L and Skinner, D J (2003), “Are Dividend Disappearing? Dividend Concentration and the Consolidation of Earnings”, Journal of Financial Economics, March, pp 1-30 Emekekekwue, P. E (2005), Corporate Financial Management, Congo; 5th edition, African Bureau of Educational Sciences Foster III, W and Vickrey, D. (1978), “The Information Content of Dividend Announcement”, The Accounting Review, Vol. 53, pp 360-370 Gordon, M. J (1959), “Dividend, Earning, and Stock Prices”, The Review of Economics and Statistics, Vol. 41, pp 99-105 Gordon, M. J (1962), “The Savings Investment and Valuation of a Corporation”, The Review of Economics and Statistics, Vol. 44, pp 37-51 Grullon, G., Michaely, R and Swaminathan, B (2002), “Are Dividend Changes a Sign of Firm Maturity?” Journal of Business, Vol. 75, pp 387-424 Lee, B. S (1995), “The Response of Stock Prices to Permanent

and Temporary Shocks, Journal of Financial and Quantitative Analysis, Vol. 30, pp 1-22 Lonie, A. A, Gunasekarage, A, Power, D M and Sinclair C D (1996), “The Stock Market Reaction to Dividend Announcements: A UK Study of Complex Market Signals”, Journal of Economic Studies, Vol. 23, pp 32-50 Nissim, D. and Ziv, A (2001), “Dividend Changes and Future Profitability”, The Journal of Finance, Vol. 61 No 6 Dec, pp 2111-2134 Nwude, C. E (2003), The Basic Principles of Financial Management, lst edition, Enugu: Chuke Nwude Nigeria Pandey, I. M (2005), Financial Management, 9th edition, New Delhi: Vikas Publishers Patra, S. (2005), “Effect of Debt Financing on Capital Structure Decision” The Management Accountant, Vol. 35 No 9 68 Source: http://www.doksinet Petit, R. (1972), “Dividend Announcements, Security Performance and Capital Market Efficiency”, Journal of Finance Vol. 27 No 5, pp 993-100 Sinclair, H. (1989), “The Effect of Dividend Payout, Stability and Smoothing on

Firm Value”, Journal of Accounting Auditing and Finance, Vol. 7, pp 195-216 69 Source: http://www.doksinet CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 5.1 SUMMARY OF FINDINGS Specifically and based on the results of the hypothesis tested the following are summary of findings. These are: 1. Dividend yield of Nigerian Commercial banks does not have positive and significant impact on stock prices of Nigerian banks. This was further supported by the correlation matrix which indicates that there was a negative relationship between stock price and dividend yield of commercial banks in Nigeria within the period of this study. 2. Earnings yield of Nigerian commercial banks does not have positive and significant impact on stock prices of Nigerian banks. Again, it was revealed that there was a negative relationship between stock prices and earnings yield and 3. Dividend payout ratio of Nigerian commercial banks does not have positive and significant impact on stock

prices of Nigerian banks. This was further supported by the correlation matrix which indicates that there was a negative relationship between stock price and dividend payout ratio of commercial banks in Nigeria. 5.2 CONCLUSION A great deal of theoretical and empirical research on dividend policy effects has been done over the last several decades. Theoretically, cash dividend from earnings means giving reward to the shareholders, that is, something they already own in the company; but this will be offset by the decline in stock value. In an ideal world therefore dividend payments would have no impact on the shareholders’ value. In the real world, however a change in the dividend policy is often followed by a change in the market value of stocks. The economic argument for investor’s preference for dividend income was offered by Graham and Dodd (1934); Walter (1963) and Gordon (1959 and 1962). Another researcher made efforts to further understand the dividend and earnings

controversy on stock prices reveals that on the average investors, subject to their personal tax rates, 70 Source: http://www.doksinet would prefer to have less cash dividend if it is taxable: size of optimal dividend inversely related to personal income tax rates (Pye, 1972). The theoretical literature on dividend and earnings effect effects has been well developed. Researchers largely accepted that dividend per-se has no impact on the shareholders’ value in an ideal economy. However, in a real world, dividend announcement is important to the shareholders because of its tax effect and information content. Thus, given the above problems and the controversies surrounding the impact of dividend and earnings on stock prices, this study examined the impact of dividend policy and earnings on stock prices of Nigeria banks. The results emanating from this study reveal that dividend yield, earnings and payout ratio of Nigerian Commercial banks does not have positive and significant

impact on stock prices of Nigerian banks. Also, the result reveals that market concentration which measure total output produced in an industry by a given number of firms in the industry was found to be negative and non-significant impact on stock prices of Nigerian Banks while, bank size was found to have positive and significant impact on stock prices in Nigeria. 5.3 RECOMMENDATIONS As a result of the findings of this study, the following are recommended. They are: 1. This study recommends managers should act in the best interest of investor as to reduce the agency problem, thus complete information about the dividend polices of the firm should be provided. It is argued that dividend announcements convey inform ation to investors regarding the firm’s value prospects (Ezra, 1963). Thus, stock prices tend to increase when an increase in dividend is announced but tend to decrease when a decrease or omission is announced. 2. This study recommends also that strict adherence to

interest of shareholders in choosing dividend policies that will maximize shareholders’ value by management. The decision taking authority in a company lies in the hands of managers. Shareholders as owners of the company are the principals and managers are their agents. Thus, there is principal-agent relationship between shareholders and managers therefore managers should and must act in the best interest of shareholders 71 Source: http://www.doksinet as consistent with shareholders’ wealth maximization objectives of the firm. This will ensure that project will enhance the growth of the firm should be undertaken while those that will not should not undertaken. 3. It is again recommended that Nigerian firms especially banks should follow a dividend payout policy that will constantly involve paying dividends annually. According to the classical school of thought who believes that dividends are paid to influence their share prices and that market price of equity is a representation

of the present value of estimated cash dividends that can be generated by the equity, However, the result from this study indicates that the payout policies of Nigerian banks do not influence stock prices, thus, This will attract the interest of investors thereby enhancing the worth of equity. 5.4 CONTRIBUTIONS TO KNOWLEDGE The subject matter of dividend policy and earnings policies of firms has remained one of the most controversial issues in corporate finance. For a very long time now, financial economists have engaged in modeling and examining corporate dividend policy and earnings as they affect banks stock prices in Nigeria. The harder one look at the dividend picture, it seems like a puzzle with pieces that don’t fit together. However, most literature in this area of finance as revealed from literature examined in this study are foreign based. Therefore, this study contributes to; 1. Geographically to knowledge by providing empirical evidence on the impact of dividend policy

and earnings on stock prices of Nigeria banks using investment ratios such as dividend yield, earnings yield, payout ratio with the introduction of some control variables in an emerging market like Nigeria. 2. Literature by providing arguments from the Nigeria commercial banks point of view using the above mentioned variables and proxies. 72 Source: http://www.doksinet REFERENCE Ezra, S. (1963), The Theory of Financial Management, New York; Columbia Press Gordon, M. J (1959), “Dividend, Earning, and Stock Prices”, The Review of Economics and Statistics, Vol. 41, pp 99-105 Gordon, M. J (1962), “The Savings Investment and Valuation of a Corporation”, The Review of Economics and Statistics, Vol. 44, pp 37-51 Graham, B. and Dodd, D L (1934), Security Analysis, 1st edition, New York: McGraw Hill Book Co. Pye, G. (1972), “Preferential Tax Treatment of Capital Gains, Optimal Dividend Policy and Capital Budgeting”, The Quarterly Journal of Economics, Vol. 86, pp 226-242 Walter,

J. E (1963), “Dividend Policy; It influence on the Value of the Enterprise”, Journal of Finance, Vol. 1 May, pp 280-291 73 Source: http://www.doksinet BIBLIOGRAPHY Abosede, A. J and Oseni, J E (2011), “Theoretical Analysis of Firm and Market-Specific Proxies of Information Asymmetry on Equity Prices in the Stock Markets”, Australian Journal of Business Management Research, Vol. 1, No2, May, pp 1-13 Acker, D. (1999), “Stock Return Volatility and Dividend Announcement”, Review of Quantitative Finance and Accounting, Vol. 12, pp 221-242 Adelegan, O. J (2003), “Capital Market Efficiency and the Effects of Dividend Announcement on Share Prices in Nigeria”, African Development Review, Vol. 15, pp 218-236 Aharony, J. and Dotan, A (1994), “Regular Dividend Announcements and Future Unexpected Earnings: An Empirical Analysis”, The Financial Review, Vol. 29, pp 125-151 Aharony, J. and Swary, I (1980), “Quarterly Dividend and Earnings Announcements and Stockholders’

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Africa Plc 18. Unity Bank of Nigeria Plc 19. WEMA Bank of Nigeria Plc 20. Zenith Bank of Nigeria Plc 85 Source: http://www.doksinet APPENDIX 2 Stock Prices of the 20 Selected Banks for the period 2006 - 2010 2006 JAN FEB MAR APR MAY JUN JULY AUG SEPT OCT NOV DEC TOTAL ACCESS 2.70 2.56 2.55 2.22 2.34 2.80 2.50 3.25 2.99 6.90 7.30 6.98 AFRI 9.10 9.10 9.10 9.10 7.50 6.58 6.60 7.93 11.51 11.51 11.51 11.51 PHB 2.60 2.60 2.60 2.60 2.60 2.60 1.98 2.65 21.31 2.39 1.96 3.12 49.01 DIA 7.75 7.75 7.75 7.75 7.75 5.38 4.32 5.93 5.90 5.90 5.90 7.47 79.55 ECO - - - 5.53 8.88 9.45 5.54 7.50 5.95 5.60 4.95 5.01 58.41 FIDEL 2.93 2.93 2.93 2.93 2.93 2.93 2.93 2.63 2.12 2.14 2.08 2.15 31.63 FIRST 33.12 37.50 37.00 42.61 48.99 51.60 62.90 42.77 34.80 36.90 29.99 33.50 FCMB 5.11 6.11 3.89 4.02 3.67 4.00 43.37 4.19 5.22 4.25 4.00 4.05 91.88 FIN 1.81 1.81 1.81 2.30 1.81 6.80

4.44 3.59 3.72 3.17 2.99 3.61 37.86 GTB 13.98 13.70 16.09 16.99 12.70 14.01 13.99 18.34 18.50 16.60 15.60 18.15 188.65 INTER 8.45 11.40 10.10 10.30 10.70 10.70 13.19 16.13 16.13 16.13 14.53 13.60 151.36 OCEAN 5.80 5.61 6.08 6.50 7.81 7.30 9.20 12.46 12.86 14.18 13.63 15.39 116.82 IBTC - - - 5.28 4.93 4.98 4.70 5.40 6.64 6.90 6.30 7.05 52.18 SYKE 3.06 3.06 3.06 3.06 3.06 3.06 3.06 - 3.06 3.06 5.58 14.13 47.25 SPRING - - - - - - - - - - 7.16 7.16 14.32 STERL - - - - - - - - 2.80 6.45 4.53 4.00 17.78 45.09 111.05 491.68 86 Source: http://www.doksinet UBA 11.90 11.80 12.81 12.57 13.48 15.00 14.84 20.50 23.69 26.50 22.00 25.31 210.40 UNION 25.48 25.48 26.28 26.48 23.48 30.00 27.80 29.32 24.10 24.50 22.00 22.92 307.84 UNITY 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 30.00 WEMA 3.74 3.74 3.74 3.74 3.74 3.06 2.28 3.52

2.67 2.97 2.89 3.20 39.29 ZENITH 19.64 19.64 19.64 19.64 19.64 21.23 27.00 23.67 25.01 24.00 22.39 24.40 265.90 2007 JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC TOTAL ACCESS AFRI PHB DIA ECO FIDEL FIRST FCMB FIN GTB INTER OCEAN IBTC SYKE SPRING STERL UBA 6.50 7.78 3.50 8.00 7.20 3.06 30.06 6.15 3.10 14.00 6.30 5.48 3.10 3.12 1.10 1.01 10.4 6.47 7.78 3.50 7.20 7.20 3.06 35.30 6.15 3.10 14.80 7.10 5.42 3.10 3.12 1.10 1.01 10.4 6.45 7.50 3.50 8.90 7.18 3.04 35.00 3.50 3.10 17.20 7.82 5.99 3.10 3.12 1.10 1.01 10.45 6.34 7.73 3.60 7.30 8.20 3.06 41.80 4.00 2.90 18.00 7.79 6.48 5.01 3.12 1.10 1.01 11.8 6.40 7.45 3.60 7.48 6.99 3.06 45.85 3.72 2.99 12.40 7.90 7.67 5.00 3.12 1.10 1.01 13.32 6.62 5.85 3.60 8.15 5.91 3.06 47.30 4.28 4.54 13.95 7.90 7.01 5.44 3.12 1.10 1.01 14.89 6.30 5.89 2.40 7.76 5.82 3.01 50.80 4.57 5.01 13.82 12.91 8.77 5.62 3.12 1.10 1.01 14.75 7.15 8.01 2.71 6.10 5.72 2.71 30.73 4.29 4.68 17.45 15.84 10.88 5.70 3.00 1.10 1.01

18.8 6.98 9.98 19.60 8.00 5.89 2.48 28.71 5.10 4.79 17.60 15.85 11.98 5.98 3.12 2.85 2.74 18.99 8.80 9.98 2.39 7.89 5.10 2.25 31.52 4.38 4.20 15.94 15.85 14.18 6.40 3.12 2.51 3.95 21.98 9.20 9.98 1.96 7.81 5.00 2.17 39.72 4.91 3.87 15.96 12.99 12.86 6.42 4.99 6.88 3.68 25.02 9.00 9.75 3.05 7.39 5.15 2.26 35.60 5.10 3.38 16.99 12.39 14.89 6.98 16.01 6.88 3.40 25.49 86.21 97.68 53.41 91.98 75.36 33.22 452.39 56.15 45.66 188.11 130.64 111.61 61.85 52.08 27.92 21.85 196.29 87 Source: http://www.doksinet UNION UNITY WEMA ZENITH 23.28 2.50 2.99 14.64 23.27 2.50 2.99 14.64 24.31 2.50 2.99 14.64 24.31 2.50 3.50 14.64 24.31 2.50 3.50 14.91 29.79 2.30 3.38 18.98 26.78 2.30 2.01 19.48 30.01 2.30 3.69 17.54 21.76 2.30 3.30 23.8 21.91 2.30 3.01 23.69 19.88 2.30 3.0 23.04 20.3 2.30 3.40 23.65 2008 JAN FEB MAR APR MAY JUN JULY AUG SEPT OCT NOV DEC 289.91 28.60 37.76 223.65 TOTAL ACCESS 23.99 24.96 24.01 19.00 19.18 17.64 15.98 13.30 11.63 7.99 7.41

7.07 192.16 AFRI 26.00 26.98 26.50 24.89 25.10 24.24 25.50 25.70 21.77 15.48 11.01 9.61 262.78 PHB 28.99 31.86 28.80 28.55 16.00 15.73 16.83 12.14 12.71 8.89 7.81 8.59 216.90 DIA 21.50 21.50 18.50 19.00 17.99 16.86 15.90 12.78 11.51 7.91 7.85 7.46 178.76 ECO 7.95 7.95 7.95 7.95 9.22 7.87 7.10 5.60 9.32 27.96 27.96 27.96 154.79 FIDEL 11.20 11.80 10.70 10.99 10.00 10.20 8.80 8.12 7.33 4.98 5.05 4.69 103.86 FIRST 40.91 50.00 47.24 41.02 41.90 42.77 43.68 32.05 27.76 20.10 22.23 21.11 430.77 FCMB 19.59 19.50 18.50 17.30 16.85 14.95 16.50 13.19 11.15 7.81 5.89 6.00 167.23 FIN 13.30 13.30 10.80 10.98 9.43 8.34 7.60 6.61 7.04 5.01 5.96 4.45 102.82 GTB 34.45 36.50 34.99 33.95 32.00 28.11 25.30 23.15 21.36 14.61 15.52 12.90 312.84 INTER 40.97 45.00 45.50 45.55 24.71 25.01 23.80 20.46 20.03 13.70 13.00 12.05 329.78 OCEAN I 27.00 28.51 27.30 26.05

23.00 29.92 20.98 17.75 16.41 11.58 8.89 10.24 247.63 88 Source: http://www.doksinet BTC 22.56 22.50 22.33 18.05 44.65 34.06 32.71 28.94 24.73 17.06 12.90 12.94 293.43 SYKE 16.84 16.84 17.40 16.90 5.59 5.59 5.59 5.59 5.59 5.59 5.59 5.59 112.70 SPRING 5.59 5.59 5.59 5.59 18.00 16.39 14.55 12.14 11.88 8.56 10.50 10.90 125.28 STERL 7.28 7.28 7.28 7.28 7.64 6.61 6.65 6.65 5.45 4.13 3.09 2.42 71.76 UBA 49.55 50.75 50.10 54.70 57.00 32.99 31.95 28.72 25.45 17.39 17.40 13.15 429.15 UNION 43.01 44.00 43.50 36.99 38.06 36.36 42.00 42.00 42.00 29.79 17.10 15.20 430.01 UNITY 8.11 9.02 8.20 6.95 6.21 5.31 5.25 3.92 4.48 3.17 3.21 2.86 66.69 WEMA 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 14.29 14.29 14.29 177.87 ZENITH 46.09 50.00 48.00 46.99 47.00 43.45 41.05 41.67 36.66 25.02 22.98 22.00 470.91 2009 JAN FEB MAR APR MAY JUN JULY AUG SEPT

OCT NOV DEC TOTAL ACCESS 3.72 5.52 4.85 5.65 10.34 8.62 6.41 6.29 6.13 6.49 6.67 7.60 78.29 AFRI 6.30 7.74 5.61 5.18 8.97 7.20 6.60 5.22 3.10 2.66 2.12 2.55 63.25 PHB 3.44 5.30 5.73 5.23 8.87 6.10 5.49 3.42 3.51 2.29 1.96 1.32 52.66 DIA 4.14 5.64 4.76 4.85 9.95 8.19 7.97 6.27 9.10 7.60 6.75 7.40 82.62 ECO 27.96 27.96 27.96 27.96 27.96 27.96 27.96 27.96 22.80 18.59 14.42 10.63 290.12 FIDEL 3.36 3.14 2.86 2.30 4.41 3.30 2.77 2.04 1.80 2.15 2.41 2.31 32.85 89 Source: http://www.doksinet FIRST 14.38 17.20 15.80 15.49 23.68 20.98 16.00 14.25 14.89 14.85 14.00 14.00 195.52 FCMB 4.15 4.45 3.90 5.75 7.67 8.11 6.92 5.45 6.38 6.45 6.95 7.06 73.24 FIN 2.73 2.55 2.22 2.30 3.13 2.67 1.96 1.58 1.03 1.01 0.70 0.51 22.39 GTB 8.66 11.30 9.92 12.76 13.53 13.35 14.04 13.87 14.20 15.50 15.29 15.07 157.49 INTER 6.04 8.04 6.50 8.20 12.65 6.93 4.05 2.94

2.28 1.54 75.19 OCEAN 6.20 7.53 4.27 6.90 10.46 7.02 6.27 4.94 2.95 2.51 2.10 1.61 62.76 IBTC 5.55 7.22 6.30 4.00 6.81 7.06 8.37 7.45 7.00 7.80 7.13 7.12 81.81 SYKE 5.59 5.59 5.59 5.59 5.59 6.42 6.20 4.30 4.48 4.98 5.46 5.40 65.19 SPRING 4.27 5.39 5.30 6.25 9.97 5.59 5.59 5.59 3.32 1.55 1.02 079 54.63 STERL 1.49 1.97 1.11 1.60 2.65 1.96 1.50 1.45 1.28 1.20 1.20 1.19 18.60 UBA 6.67 9.80 8.00 10.71 16.59 12.91 14.69 12.20 11.10 10.70 137.57 UNION 9.78 13.28 10.10 11.40 18.82 17.07 13.96 12.60 6.59 7.30 6.07 5.72 132.69 UNITY 1.78 1.70 1.05 1.31 2.82 2.03 1.63 1.22 1.17 1.06 0.90 0.80 17.47 WEMA 14.29 9.04 4.70 2.09 4.00 3.59 2.13 1.70 1.12 1.32 1.05 0.89 45.92 ZENITH 12.10 15.00 11.77 14.40 26.46 3.64 14.50 11.83 12.71 14.30 13.07 13.39 163.17 9.57 645 12.8 1140 90 Source: http://www.doksinet 2010 JAN FEB MAR APR MAY JUN JULY AUG SEPT

OCT NOV DEC TOTAL ACCESS AFRI PHB DIA ECO FIDEL FIRST FCMB FIN GTB INTER OCEAN IBTC SYKE SPRING STERL UBA UNION UNITY WEMA ZENITH 8.23 2.82 2.22 8.40 8.24 2.51 14.72 8.85 0.77 17.79 2.30 2.30 8.30 6.79 1.12 1.69 12.45 8.45 1.00 1.13 15.31 9.10 2.70 1.91 9.35 5.99 14.56 14.56 9.20 0.69 18.06 2.00 2.06 8.45 7.36 0.96 1.73 13.01 6.05 1.15 1.15 15.71 10.18 2.83 1.73 9.80 7.04 3.48 15.91 9.00 0.73 20.94 1.99 2.02 11.09 8.30 0.95 2.55 14.91 6.09 1.04 1.05 19.01 8.78 2.19 1.3 7.70 5.50 2.71 15.50 7.37 0.59 18.14 1.63 1.72 8.57 7.38 1.02 1.85 11.22 5.69 0.99 1.11 14.70 8.13 2.13 1.52 7.77 5.29 2.85 14.32 7.76 0.52 17.25 1.80 1.63 10.85 8.29 0.86 2.00 11.05 5.56 1.11 1.17 13.50 8.10 1.96 1.33 7.55 4.70 2.67 13.17 8.30 0.52 16.85 1.58 1.65 10.07 8.05 0.63 1.83 10.78 4.98 1.11 0.99 13.80 9.09 2.08 1.49 7.51 4.60 2.53 13.40 7.89 0.58 16.80 2.25 1.97 9.10 7.30 0.66 2.16 10.50 5.63 1.11 1.08 14.31 8.14 1.89 1.18 6.30 4.50 2.31 12.90 6.50 0.51 15.40 1.72 1.54 8.93 7.10 0.84 1.95 9.13 4.95

1.06 0.89 12.57 8.38 1.34 0.95 6.36 3.59 2.28 11.0 5.53 0.50 14.59 1.29 1.08 7.50 7.54 0.56 1.45 9.45 3.63 0.70 0.84 12.36 8.38 2.17 1.4 7.90 3.70 2.4 12.90 6.95 0.66 17.00 1.98 2.31 9.00 7.30 0.75 1.87 9.00 4.09 1.09 1.17 13.17 9.21 2.50 1.97 7.96 3.60 2.48 12.95 7.90 0.87 15.50 2.26 2.52 9.20 8.30 1.04 2.19 8.80 4.59 1.25 1.39 14.59 7.60 2.18 1.75 7.50 3.60 2.69 13.73 7.50 0.73 17.76 2.16 2.50 9.20 8.80 0.91 2.34 9.15 4.20 1.20 1.29 15.01 103.32 26.79 18.75 94.10 60.35 43.47 165.06 92.75 7.67 206.08 22.96 23.30 110.26 92.51 10.30 23.61 129.45 63.91 12.81 13.26 174.04 91 Source: http://www.doksinet APPENDIX 3 MODEL PROXIES BANKS ACCESS AFR PHB DIAMD ECO YRS TMPS SP DPS 1 45.09 3.76 0 2 87.21 7.27 0 3 192.2 16.01 0.4 4 78.29 6.52 0.65 5 103.3 8.61 0.20 1 111.1 9.25 6.50 2 97.68 8.14 0.70 3 262.8 21.90 0.45 1 49.01 4.08 6.50 2 53.41 4.45 0.70 3 216.9 18.08 0.45 4 52.66 1 79.55 4.39 6.63 0.36 2 91.98 7.67 0.55 3

178.8 14.9 0.56 4 82.62 6.89 1.64 5 94.1 7.84 0.96 1 58.41 4.87 0 2 75.36 6.28 0.24 3 154.8 12.9 0.7 4 290.1 24.18 0.24 5 60.12 5.03 0.15 1 31.63 2.64 0.22 0 Dyield 0 0 40.025 10.031 43.05 1.4231 11.629 48.667 0.6277 6.3571 40.178 0 18.417 13.945 26.607 4.2012 8.1667 0 26.167 18.429 100.75 FIDTY 33.533 12 EPS 0.7 0.87 0.17 1.41 0.72 0.13 1.19 2.46 0.13 1.19 2.46 -20 0.57 0.89 1.10 0.48 0.45 0.27 0.34 0 0.64 0.12 0.19 Eyield 5.3714 8.3563 94.1765 4.6241 11.9583 71.1538 6.8403 8.9024 31.3846 3.7395 7.3496 -0.2201 11.6316 8.6180 13.5455 14.3542 17.4222 18.0370 18.4706 0.0000 -37.7813 41.9167 13.8947 POR 0.0000 0.0000 0.4250 2.1692 3.6000 0.0200 1.7000 5.4667 0.0200 1.7000 5.4667 0.0000 1.5833 1.6182 1.9643 0.2927 0.4688 0.0000 1.4167 0.0000 -2.6667 0.8000 0.8636 OUTSHARES MKT CON 13,956,321,723 3,711,787,691.00 6,978,160,860 959,857,065.00 16,142,501,847 1,008,276,192.00 16,214,258,437 2,486,849,452.00 17,888,251,478

2,077,613,411.00 5,108,433,332 552,263,063.00 5,108,433,332 627,571,663.00 6,130,119,998 279,914,155.00 19,305,974,000 4,731,856,373.00 6,435,024,000 1,446,072,809.00 15,154,993,500 838,218,667.00 20,104,994,000 4,579,725,285.00 7,603,608,000 1,146,848,869.00 9,399,914,000 1,225,542,894.00 13,159,313,000 883,175,369.00 14,475,244,000 2,110,906,241.00 14,475,244,000 1,846,332,143.00 21,654,226,926 4,446,453,166.00 21,654,226,926 3,448,125,306.00 7,218,075,141 559,540,709.00 7,218,075,642 MC 0.0199 0.0051 0.0054 0.0133 0.0111 0.0199 0.0034 0.0015 0.0253 0.0077 0.0045 0.0245 0.0061 0.0066 0.0047 0.0113 0.0099 0.0238 0.0185 0.0030 298,514,295.00 TOTAL ASSETS 174,553,866,000 328,615,194,000 1,043,465,021,000 674,865,041,000 726,960,580,000 138,047,000,000 187,079,000,000 352,270,000,000 158,861,195,000 378,949,309,000 1,036,586,074,000 558,043,831,000 223,047,862,000 312,249,721,000 603,326,540,000 650,891,836,000 548,402,560,000 132,091,706,000

311,395,894,000 432,466,245,000 13,879,951,642 16,463,686,588 6,236,244,917.00 11.2419 11.5167 12.0185 11.8292 11.8615 11.1400 11.2720 11.5469 11.2010 11.5786 12.0156 11.7467 11.3484 11.4945 11.7806 11.8135 11.7391 11.1209 11.4933 11.6360 355,662,000,000 0.0016 2,759,433,726.00 BK SIZE 0.0148 0.0334 11.5510 454,239,000,000 119,985,801,000 11.6573 11.0791 92 Source: http://www.doksinet 2 33.22 2.77 0.32 3 103.9 8.67 0.60 4 32.85 2.74 0.5 5 43.47 3.62 0.14 1 37.86 3.16 0.11 2 45.66 3.81 0 3 102.8 8.57 0 1 491.7 40.97 1.00 2 452.4 37.7 1.20 3 430.8 35.9 1.35 4 195.5 16.29 0.10 5 165.1 13.75 0.60 1 91.88 7.66 0.13 2 56.15 4.68 0.35 3 167.2 13.94 0.50 4 73.24 6.1 0.50 5 92.75 7.73 0.50 1 188.7 15.72 0.70 2 188.1 15.68 1.03 3 312.8 26.07 0.75 4 157.5 13.12 1.00 5 206.1 17.17 1.00 1 151.4 12.61 0.45 2 130.6 10.89 0.65 3 329.8 27.48 0.75 1 116.8 9.74 0.42 FIN FIRST FCMB GTB

INTER OCEAN 8.6563 14.45 5.48 25.857 28.727 0 0 40.97 31.417 26.593 162.9 22.917 58.923 13.371 27.88 12.2 15.46 22.457 15.223 34.76 13.12 17.17 28.022 16.754 36.64 23.19 0.25 0.45 0.8 0.20 1.07 0.27 0.10 2.69 1.56 2.23 1.41 0.83 0.36 0.61 1.23 0.21 0.45 1.45 1.63 1.73 1.28 1.57 1.10 1.38 1.83 103 11.0800 19.2667 3.4250 18.1000 -2.9533 14.1111 85.7000 15.2305 24.1667 16.0987 11.5532 16.5663 21.2778 7.6721 11.3333 29.0476 17.1778 10.8414 9.6196 15.0694 10.2500 10.9363 11.4636 7.8913 15.0164 0.0949 0.7813 0.7500 1.6000 1.4286 -9.7273 0.0000 0.0000 2.6900 1.3000 1.6519 14.1000 1.3833 2.7692 1.7429 2.4600 0.4200 0.9000 2.0714 1.5825 2.3067 1.2800 1.5700 2.4444 2.1231 2.4400 244.3571 16,463,686,588 5,943,569,162.00 28,962,585,691 3,340,551,983.00 28,962,585,691 1,057,028,675.00 28,962,585,691 8,000,714,279.00 9,688,630,000 0.0318 0.0179 0.0057 0.0429 2,396,354,430.00 217,144,465,000 533,122,233,000 504,163,720,000 478,020,000,000 9,688,630,000 6,789,750,500

1,130,528,588.00 5,237,930,699 127,847,955.00 1,047,769,537 27,792,295.00 1,988,841,297 55,399,479.00 2,486,462,869 152,637,377.00 3,263,184,395 237,322,502.00 9,502,430,142 1,240,526,128.00 9,502,430,142 2,030,433,791.00 16,271,192,202 1,167,230,430.00 16,271,192,202 2,667,408,557.00 16,271,192,202 2,104,940,776.00 6,000,000,000 381,679,389.00 8,000,000,000 510,204,082.00 13,679,415,650 524,718,667.00 18,653,748,614 1,421,779,620.00 23,317,185,766 1,358,018,973.00 10,723,586,000 850,403,331.00 10,723,586,000 984,718,641.00 17,900,000,000 651,382,824.00 9,313,606,000 956,222,382.00 11.7268 11.7026 11.6875 33,846,000,000 0.0128 2,542,947,507.00 11.3367 0.0136 0.0061 0.0007 0.0001 0.0003 0.0008 0.0013 0.0066 0.0109 0.0063 0.0143 0.0113 0.0020 0.0027 0.0028 0.0076 0.0073 0.0046 0.0053 0.0035 0.0051 10.5295 181,308,208,000 444,193,935,000 538,145,000,000 762,881,000,000 1,165,461,000,000 1,667,422,000,000 1,957,258,000,000 106,611,289,000

262,805,890,000 465,210,901,000 514,409,614,000 530,073,488,000 305,080,565,000 47,836,306,100 717,999,797,000 1,019,911,536,000 1,066,762,763,000 360,903,483,000 663,547,099,000 1,331,404,000,000 371,626,044,000 11.2584 11.6476 11.7309 11.8825 12.0665 12.2220 12.2916 11.0278 11.4196 11.6676 11.7113 11.7243 11.4844 10.6798 11.8561 12.0086 12.0281 11.5574 11.8219 12.1243 11.5701 93 Source: http://www.doksinet 2 111.6 9.30 1.02 3 247.6 20.64 0 4 62.76 5.23 0 5 23.3 1.94 0 1 47.25 2 52.08 3.94 4.34 2.86 3 112.7 9.39 1.08 4 65.19 5.43 0.5 5 92.51 7.71 0.40 1 52.18 4.35 0.20 2 61.85 5.15 0.30 3 293.4 24.45 0.40 4 81.81 6.82 0.30 5 110.3 9.19 0.39 1 17.78 1.48 0.10 2 21.85 1.82 0.10 3 71.76 5.98 0.10 4 18.6 1.55 0 5 23.61 1.97 0 1 307.8 25.65 0.69 2 289.9 24.16 1.00 3 430 35.83 0.02 4 132.7 11.06 0.02 5 63.91 5.33 0 1 210.4 17.53 1.00 9.1176 0 0 SYKE SIBTC STERL 0 0 0 1.5175 8.6944

10.86 19.275 21.75 17.167 61.125 22.733 23.564 14.8 18.2 59.8 0 UNION 0 37.174 24.16 1791.5 553 UBA 0 17.53 147 10.9 4.07 1.14 32.8 73.5 173 9.76 70.4 0.57 0.63 0.49 0.33 0.42 0.9 0.6 0.52 0.53 0.33 1.60 1.26 2.14 5.26 8.74 1.86 0.0632 -1.9006 -1.2850 144.2843 0.0000 0.0000 11,642,006,000 22,221,370,000 22,221,370,000 1.7018 0.0000 22,221,370,000 0.1200 0.0000 7,504,000,000 0.0590 0.0544 0.5564 0.1095 7.6316 8.1746 49.8980 20.6667 21.8810 1.6444 3.0333 11.5000 -2.9245 5.9697 16.0313 19.1746 16.7430 -2.1027 0.6098 9.4247 25.7063 159.7500 19.5200 176.0250 2.8500 2.1000 1.2250 1.1000 1.0769 9.0000 6.0000 5.2000 0.0000 0.0000 2.3188 1.2600 107.0000 -263.0000 0.0000 1.8600 1,251,828,602.00 1,076,616,764.00 0.0058 1,904,568,528.00 11,584,000,000 1,233,652,822.00 11,584,000,000 2,133,333,333.00 13,218,000,000 1,714,396,887.00 12,129,411,760 2,788,370,520.00 4,685,500,000 909,805,825.00 18,750,000,000 766,871,166.00 18,750,000,000 2,749,266,862.00

18,750,000,000 2,040,261,153.00 10,552,846,000 7,130,301,351.00 10,552,846,000 5,798,267,033.00 12,563,090,000 2,100,851,171.00 0.0061 0.0102 0.0093 0.0066 0.0114 0.0092 0.0149 0.0049 0.0041 0.0147 0.0109 0.0382 0.0311 0.0113 8,105,219,355.00 12.0032 11.9392 929,895,133,000 115,793,630,700 446,114,000,000 784,878,000,000 497,731,200,000 674,064,000,000 120,575,000,000 157,148,000,000 345,731,071,000 331,796,000,000 372,612,000,000 111,197,074,000 145,974,674,000 236,502,923,000 12,563,090,000 9,022,823,649 351,767,004.00 9,623,809,524 398,336,487.00 11,580,000,000 323,192,855.00 0.0342 0.0019 0.0021 0.0017 1,221,518,987.00 13,510,000,000 7,060,000,000 402,738,163.00 11.0637 11.6494 11.8948 11.6970 11.8287 11.0813 11.1963 11.5387 11.5209 11.5713 11.0461 11.1643 11.3738 11.2162 259,579,523,000 845,231,000,000 619,800,000 907,074,000,000 11.4143 11.9270 8.7923 11.9576 1,106,779,000,000 0.0065 2,534,709,193.00 11.9684 164,512,661,600 0.0434 6,377,203,046.00

12.0130 869,319,176,000 0.0228 1,145,431,443.00 7,504,000,000 13,510,000,000 1,030,440,887,000 1,007,475,862,000 4,248,827,916.00 1,729,032,258.00 12,563,090,000 0.0067 0.0136 0.0022 12.0441 845,231,000 567,494,000,000 8.9270 11.7540 94 Source: http://www.doksinet UNITY 2 196.3 16.36 1.20 3 429.2 35.76 1.00 4 137.5 11.46 0.10 5 129.5 10.79 0.05 1 30 2 28.6 2.50 2.38 3 66.69 5.56 0 4 17.47 1.46 1.50 5 12.81 1.07 0.50 1 39.29 3.27 0 2 37.76 3.15 0.09 3 177.9 14.81 0.05 4 45.92 3.83 0.05 5 13.26 1.11 5.41 1 265.9 22.16 1.10 2 223.7 18.64 1.70 3 470.9 39.24 0.85 4 163.2 13.60 0.45 5 174 14.50 0.85 13.633 35.76 114.6 215.8 0 0 0 0 0 0.9733 2.14 WEMA 0 35 296.2 76.6 ZENITH 0.2052 20.145 10.965 46.165 30.222 17.059 2.41 3.05 0.60 0.8 12.3 5.85 4.97 1.01 37.5 0.68 0.25 5.73 1.16 1.54 1.91 1.89 3.45 0.73 1.06 6.7884 11.7246 19.1000 13.4875 0.2036 0.4068 1.1187 -1.4455 0.0285 -4.8088 12.6000

-2.5846 -3.3017 0.7208 11.6021 9.8624 11.3739 18.6301 13.6792 2.0083 3.0500 6.0000 16.0000 0.0000 0.0000 0.0000 -0.6733 74.9600 0.0000 2.7778 -114.6000 -23.2000 0.2847 1.7364 1.1118 4.0588 1.6222 1.2471 11,496,000,000 702,689,487.00 17,244,000,000 482,214,765.00 21,556,000,000 1,880,977,312.00 25,868,000,000 2,397,405,005.00 43,505,712,779 1,740,288,511.00 14,501,904,000 6,093,236,975.00 14,501,904,000 2,608,256,115.00 15,952,094,000 33,287,177,238 9,923,016,000 10,069,943,000 10,069,943,000 10,069,943,000 0.0038 0.0026 0.0101 0.0128 0.0093 0.0326 0.0140 1,092,609,178.00 1,102,348,000,000 1,520,093,000,000 1,120,703,200,000 1,432,632,000,000 131,031,671,000 203,234,002,000 364,080,837,000 0.0167 3,034,561,468.00 0.0171 9,265,524,300 497,077,484.00 16,744,796,686 426,727,744.00 25,117,195,029 31,396,493,786 1,846,852,575.00 2,165,275,433.00 11.5491 11.4846 11.2177 11.1103 110,981,613,000 0.0141 9,173,488,900 11.3080 11.0796 165,081,532,000 0.0036

413,966,106.00 11.1174 128,906,575,000 2,629,227,937.00 12,821,249,880 12.1561 120,109,067,000 679,942,134.00 1,155,067,557.00 12.0495 11.4096 305,221,933,000 0.0163 3,196,807,302.00 12.1819 256,798,086,000 0.0059 3,110,951,143.00 12.0423 0.0062 0.0022 0.0027 0.0023 0.0099 0.0116 11.0453 203,144,627,000 608,505,175,000 883,940,926,000 1,344,241,604,000 1,258,556,800,000 1,789,458,000,000 11.3078 11.7843 11.9464 12.1285 12.0999 12.2527 186,713,988,239.00 TMPS = Total Market Price of the Stock from Jan to Dec divided by the 12 months, then you get the MPS Dyield= Dividend Per Share divided by marker price of the stock Eyield= Earnings per share divided by market price of the stock POR= Dividend per share divided by earnings per share MKT CON= Outstanding shares divided by market price per share, then the answer is MKT CO of BK A 2006-2010 divided by all the Bks BK SIZE= Log of Total Assets 95 Source: http://www.doksinet APPENDIX 4 Panel Data of Model Proxies No 1

2 3 4 5 6 7 8 9 BANKS ACC ACC ACC ACC ACC AFR AFR AFR PHB PHB PHB PHB DIAMD DIAMD DIAMD DIAMD DIAMD ECO ECO ECO ECO ECO FIDTY FIDTY FIDTY FIDTY FIDTY FIN FIN FIN FIRST FIRST FIRST FIRST FIRST FCMB FCMB FCMB FCMB FCMB Yr 1 2 3 4 5 1 2 3 1 2 3 4 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 1 2 3 4 5 1 2 3 4 5 SP 3.7575 7.2675 16.0133 6.52417 8.61 9.25417 8.14 21.8983 4.08417 4.45083 18.075 4.38833 6.62917 7.665 14.8967 6.885 7.84167 4.8675 6.28 12.8992 24.1767 5.02917 2.63583 2.76833 8.655 2.7375 3.6225 3.155 3.805 8.56833 40.9733 37.6992 35.8975 16.2933 13.755 7.65667 4.67917 13.9358 6.10333 7.72917 Dyield 0 0 0.02498 0.09963 0.02323 0.00702 0.086 0.02055 0.01592 0.15727 0.0249 0 0.05431 0.07175 0.03759 0.2382 0.12242 0 0.03822 0.00543 0.00993 0.02983 0.08347 0.11559 0.06932 0.01826 0.03865 0.03487 0 0 0.02441 0.03183 0.03761 0.00614 0.04362 0.01698 0.0748 0.03588 0.08192 0.06469 Eyield 0.01863 0.11971 0.10803 0.21612 0.08362 0.01405 0.14619 0.11234 0.03183 0.26737 0.1361 -4.5461

0.08598 0.11611 0.07384 0.06972 0.05739 0.05547 0.05414 0 -0.0265 0.02386 0.07208 0.09031 0.05199 0.02922 0.05521 0.33914 0.07096 0.01167 0.06565 0.04138 0.06212 0.08654 0.06034 0.04702 0.13037 0.08826 0.03441 0.05822 POR 0 0 0.23121 0.46099 0.27778 0.5 0.58824 0.18293 0.5 0.58824 0.18293 0 0.63158 0.61798 0.50909 3.41667 2.13333 0 0.70588 -0.375 1.25 1.15789 1.28 1.33333 0.625 0.7 0.1028 0 0 0.37175 0.76923 0.60538 0.07092 0.72289 0.36111 0.57377 0.4065 2.38095 1.11111 Mconc 0.08333 0.0238 0.05007 0.0474 0.05064 0.0124 0.01556 0.0139 0.10623 0.03586 0.04163 0.0873 0.02575 0.03039 0.04386 0.04024 0.045 0.09982 0.08551 0.02779 0.00569 0.06726 0.14 0.1474 0.16589 0.02015 0.19502 0.0538 0.06306 0.05614 0.00287 0.00069 0.00275 0.00291 0.00578 0.02785 0.05035 0.05796 0.05084 0.05131 BKsize 11.2419 11.5167 12.0185 11.8292 11.8615 11.14 11.272 11.5469 11.201 11.5786 12.0156 11.7467 11.3484 11.4945 11.7806 11.8135 11.7391 11.1209 11.4933 11.636 11.551 11.6573 11.0791 11.3367 11.7268 11.7026

11.6794 10.5295 11.2584 11.6476 11.7309 11.8825 12.0665 12.222 12.2916 11.0278 11.4196 11.6676 11.7113 11.7243 96 Source: http://www.doksinet 10 11 12 13 14 15 16 17 18 19 GTB GTB GTB GTB GTB INTER INTER INTER OCEAN OCEAN OCEAN OCEAN OCEAN SKYE SKYE SKYE SKYE SKYE SIBTC SIBTC SIBTC SIBTC SIBTC STERL STERL STERL STERL STERL UNION UNION UNION UNION UNION UBA UBA UBA UBA UBA UNITY UNITY UNITY UNITY UNITY WEMA WEMA 1 2 3 4 5 1 2 3 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 15.7208 15.6758 26.07 13.1242 17.1733 12.6133 10.8867 27.4817 9.735 9.30083 20.6358 5.23 1.94167 3.9375 4.34 9.39167 5.4325 7.70917 4.34833 5.15417 24.4525 6.8175 9.18833 1.48167 1.82083 5.98 1.55 1.9675 25.6533 24.1592 35.8342 11.0575 5.32583 17.5333 16.3575 35.7625 11.4608 10.7875 2.5 2.38333 5.5575 1.45583 1.0675 3.27417 3.14667 0.04453 0.06571 0.02877 0.0762 0.05823 0.03568 0.05971 0.02729 0.04314 0.10967 0 0 0 0 0.65899 0.115 0.0092 0.05189 0.04599 0.05821 0.01636 0.044

0.04245 0.06749 0.05492 0.01672 0 0 0.0269 0.04139 0.00056 0.00181 0 0.05703 0.07336 0.01678 0.00873 0.00463 0 0 0 1.03034 0.46838 0 0.0286 0.09223 0.10398 0.06636 0.09753 0.09142 0.08721 0.12676 0.06659 10.5424 15.8233 -0.5263 0.7782 0.58712 8.34032 16.9401 18.3695 1.79659 9.13328 0.13108 0.12223 0.02004 0.0484 0.04571 0.06074 0.03295 0.08696 0.34194 0.16773 0.06237 0.05215 0.05972 -0.4757 1.64106 0.10608 0.14733 0.08528 0.05235 0.00742 4.912 2.45455 0.89429 0.69376 35.1101 0.20769 0.07945 0.48276 0.6319 0.43353 0.78125 0.63694 0.40909 0.47101 0.40984 0.00409 0.00693 0 0 0 0 0.0389 0.00626 0.00512 0.00568 0.35088 0.47619 0.81633 0.90909 0.92857 1.11111 1.66667 0.19231 0 0 0.43125 0.79365 0.00935 -0.0038 0 0.53763 0.49793 0.19672 0.16667 0.625 0 0 0 1.48515 0.01334 0 0.36 0.00857 0.01265 0.02606 0.0271 0.0331 0.01909 0.02442 0.03235 0.02147 0.03104 0.05346 0.08099 0.02792 0.04276 0.04288 0.06126 0.04066 0.04179 0.0626 0.02256 0.03808 0.05241 0.04973 0.16007 0.14379 0.10433 0.1545

0.15545 0.0079 0.00988 0.01605 0.02328 0.06178 0.00904 0.01743 0.02395 0.03585 0.05844 0.03907 0.15111 0.12952 0.02083 0.07583 0.06812 0.07928 11.4844 10.6798 11.8561 12.0086 12.0281 11.5574 11.8219 12.1243 11.5701 12.013 12.0032 11.9392 11.9684 11.0637 11.6494 11.8948 11.697 11.8287 11.0813 11.1963 11.5387 11.5209 11.5713 11.0461 11.1643 11.3738 11.2162 11.4143 11.927 8.79225 11.9576 12.0441 8.92698 11.754 12.0423 12.1819 12.0495 12.1561 11.1174 11.308 11.5612 11.4096 11.4846 11.0796 11.2177 97 Source: http://www.doksinet WEMA 3 14.8225 000337 038657 000873 WEMA 4 3.82667 001307 030314 00431 WEMA 5 1.105 4.89593 139367 351299 20 ZENITH 1 22.1583 004964 00862 057592 ZENITH 2 18.6375 009121 010141 089947 ZENITH 3 39.2425 002166 008791 024638 ZENITH 4 13.5975 003309 005369 061644 ZENITH 5 14.5033 005861 007309 080189 Source: Annual Financial Statements of banks (Various Years) Date: 06/07/13 Time: 11:15 Sample: 93 0.03377 0.05012 0.02816 0.00929 0.01233 0.02119 0.0352 0.05278

11.1103 11.0453 11.3078 11.7843 11.9464 12.1285 12.0999 12.2527 Descriptive Statistic SP DYIELD EYIELD POR MCONC BKSIZE Mean Median Maximum Minimum Std. Dev Skewness Kurtosis 11.29757 7.841667 40.97333 1.067500 9.599503 1.402819 4.406538 0.112908 0.033094 4.895928 0.000000 0.518952 8.628409 79.41197 1.406051 0.086538 35.11007 -4.546145 4.945637 4.618286 27.34995 0.517030 0.420543 3.512987 -0.375000 0.655808 2.424382 10.63621 0.051349 0.040665 0.195020 0.000689 0.043299 1.431634 4.456504 11.55165 11.64757 12.29165 8.792252 0.545499 -2.596499 13.62981 Jarque-Bera Probability 38.16856 0.000000 23779.27 0.000000 2628.157 0.000000 313.6517 0.000000 39.98886 0.000000 542.3450 0.000000 Observations 93 93 93 93 93 93 98 Source: http://www.doksinet APPENDIX 5 Regression Result of Hypothesis One Dependent Variable: SP Method: Least Squares Included observations: 93 Variable Coefficient DYIELD -3.365192 MCONC -112.1061 BKSIZE 3.620401 C -24.38751 R-squared 0.759063

Adjusted R-squared 0.637458 S.E of regression 7.813677 Sum squared resid 5433.766 Log likelihood -321.1134 Durbin-Watson stat 1.449165 Source: E-view Results Std. Error t-Statistic 1.575960 -2.135328 19.18778 -5.842579 1.520690 2.380762 17.80417 -1.369764 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) Prob. 0.0355 0.0000 0.0194 0.1742 11.29757 9.599502 6.991687 7.100616 16.61970 0.000000 Regression Result of Hypothesis Two Dependent Variable: SP Method: Least Squares Included observations: 93 Variable EYIELD MCONC BKSIZE C R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Source: E-view Results Coefficient -0.331065 -108.4813 3.842394 -27.05250 0.734310 0.673245 7.836515 5465.576 -321.3849 1.147148 Std. Error t-Statistic 0.165221 -2.003771 19.18598 -5.654195 1.522954 2.522988 17.81388 -1.518619 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion

F-statistic Prob(F-statistic) Prob. 0.0481 0.0000 0.0134 0.1324 11.29757 9.599502 6.997524 7.106453 16.35031 0.000000 99 Source: http://www.doksinet Regression Result of Hypothesis Three Dependent Variable: SP Method: Least Squares Included observations: 93 Variable POR MCONC BKSIZE C R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Source: E-view Results Coefficient -1.411019 -107.7532 3.841548 -26.82391 0.823545 0.713051 7.956296 5633.935 -322.7956 1.183245 Std. Error t-Statistic 1.269427 -1.111540 19.50537 -5.524283 1.546538 2.483966 18.08687 -1.483060 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic) Prob. 0.2693 0.0000 0.0149 0.1416 11.29757 9.599502 7.027863 7.136792 14.97518 0.000000 100