DO FIRMS SMOOTH THEIR DIVIDEND OVER TIME? EVIDENCE FROM LISTED MANUFACTURING FIRMS IN NIGERIA

Finance scholars have long engaged in theorizing the tendency of firms
to smooth dividend or not to smooth given the nature of the environment
in which the companies operate. This study examines dividend changes
of manufacturing firms in Nigeria. The study develops two hypotheses
and applies generalized least square using Least Squares Dummy
Variable (LSDV) model to analyze the relationship between the
dependent variable, dividend changes and the two independent
variables; current earnings and previous dividend of firms using
secondary data extracted from Nigerian Stock Exchange (NSE) fact
book over the period 2000 to 2009. The study estimated Ordinary Least
Squares, fixed and random effect model and employs hausman test and
wald test to determine the best-fitted estimates of the model. Lintner
Speed of Adjustment Factor was used to determine the level of
smoothing behaviour of the firms. The theoretical assertion was justified
through fixed effect LSDV model. The findings of the study reveal that;
current earnings and previous dividend have negative significant impact
on dividend changes. Further, based on the Lintner framework, the study
found evidence of regular but not stable dividend policies being pursued
by manufacturing firms in Nigeria. The study recommends that
manufacturing firms in Nigeria should continue to rely on level of
profitability and previous dividend in deciding current period payment
of dividend, in view of the significant impact of current earnings and
previous dividend in determining dividend changes.