Working Paper 250- Quality of Corporate Governance on Dividend Payouts: The Case of Nigeria

Corporate governance (CG) safeguards shareholders’ portfolios and ensures optimal returns in terms of dividend payouts (DPs) on investment. The association between CG and DPs could be significant in relation to risk exposure, operational and financing activities across firms and sectors. The relationship between CG and DPs has been well documented, however; the role of industry classification on the relationship has not been given adequate consideration in the literature. This study, therefore, examines the moderating effects of sector classification of CG on DPs in Nigeria. Agency theory underpins the model which captures the effects of CG on DPs. Governance indicators (number of independent directors, institutional investors, board size and managerial shareholding) and dividend per share of 97 non-financial listed companies in Nigeria from 1995-2012 drawn from Analysts’ Data Services & Resources Limited Ibadan, Nigeria are utilised. The analysis is conducted at aggregate and sectoral levels. A representative multi-sector sample is taken from agriculture (5), automobile (5), building (8), brewery (6), chemical/paints (9), conglomerates (9), construction (6), food and beverages, (17), healthcare (11), industrial/domestic products (10), petroleum (9) and printing/publishing (3) sub-sectors. System generalised method of moments estimation technique is employed in the analysis. It accommodates firm level characteristics and addresses autocorrelation bias. The empirical findings indicate a positive association between corporate governance and dividend payment, implying that, previous dividend, number of independent directors, institutional investors; profits after tax and gross earnings of firms are the major drivers of corporate decisions and consequently dividend payouts in Nigeria during the period under consideration. Additionally, the analysis underlines the importance of the mode of operations (sector classification) in the relationship between corporate governance practices and dividend payouts in Nigeria. Based on the results of the study, it is suggested that more independent directors should be on the boards of corporate firms and the proportion of institutional shareholding also be increased to improve monitoring