35-year analysis of major banks shows dividend policy remains crucial strategic tool

Dividend payments are more than just a way to distribute profits. They serve as powerful signals of corporate health and management confidence, according to new research examining Nigeria’s banking sector over three and a half decades.

Dr. Olamide Ayodele of the Department of Finance at Ekiti State University, Nigeria and the PENKUP Research Institute, United Kingdom led the comprehensive study, which analyzed data from four major Nigerian banks spanning 1990 to 2013, with interpretation extending to 2025. The findings confirm that consistent dividend policies significantly influence both profitability and market valuation, even amid economic turbulence and industry transformation.

A Long-Standing Financial Debate

Dividend policy has sparked debate among finance scholars for generations. Some argue that paying dividends simply moves money from one pocket to another without creating real value. Others maintain that dividend payments communicate vital information about a company’s financial strength and future prospects.

Dr. Ayodele’s research tackles this question by examining First Bank of Nigeria, Guaranty Trust Bank (now Guaranty Trust Holding Company Plc, or GTCO Plc), United Bank for Africa, and Union Bank across periods of regulatory reform, technological disruption, and economic crisis, including the COVID-19 pandemic.

What the Numbers Show

Using advanced statistical methods including multiple regression and Newey-West HAC estimation, the study explored how dividend per share, debt-equity ratios, and current ratios affect return on capital employed and market value per share.

The results are clear: dividend per share emerges as a significant predictor of both profitability and market valuation. Banks that maintain steady dividend payments tend to perform better financially and command higher market values. However, the effects of debt levels and liquidity measures varied depending on specific institutional circumstances.

These findings hold particular weight given Nigeria’s economic volatility, characterized by currency fluctuations, regulatory changes, and periodic banking sector reforms. The fact that dividend policy remains influential across such diverse conditions underscores its strategic importance.

Navigating Modern Banking Challenges

The study’s 35-year scope captures major transformations in Nigerian banking. The sector has weathered recapitalization requirements meant to strengthen financial stability, embraced digital banking technologies that reshaped operations, and survived the global economic shock of the COVID-19 pandemic.

Throughout these changes, dividend policy has remained a critical tool for banks to signal their financial health to investors and maintain market confidence. The research suggests that transparent, consistent dividend practices help stabilize banks and strengthen trust in the broader financial system.

Global Collaboration in Action

Dr. Ayodele conducted this research through the PENKUP Research Institute, founded by Dr. Kennedy O. Obohwemu, a prominent public health researcher and influential advocate for international research partnerships who gained widespread recognition for his critically acclaimed novel psychological theories [the Self-Comforting and Coping Theory (SCCT) and the Self-Comforting Attitude Theory (SCAT)]. Based in Birmingham, United Kingdom, the institute connects scholars worldwide who dedicate their personal time to collaborative research across disciplines.

“Every publication from PENKUP represents countless hours of voluntary effort from scholars who believe in collaborative research,” Dr. Obohwemu said. “Dr. Ayodele’s comprehensive analysis of Nigerian banking demonstrates how our model enables deep, sustained inquiry into important regional and global issues. I remain inspired by the dedication of everyone involved.”

Practical Recommendations

The study offers clear guidance for Nigerian banks and similar institutions in emerging markets. While dividends matter for shareholder satisfaction and market perception, banks must balance these payments against the need to retain earnings for innovation, regulatory capital requirements, and long-term growth initiatives.

Dr. Ayodele emphasizes that finding this balance is especially crucial as banks navigate digital transformation, compete with fintech startups, and adapt to evolving regulatory frameworks. Short-term shareholder gratification should not compromise the resources needed for strategic investments and institutional resilience.

Implications for Investors and Regulators

For investors, the research confirms that dividend history provides meaningful insight into bank performance and management quality. Consistent dividend payments often reflect underlying financial strength and prudent governance.

For regulators and policymakers, the findings support the view that dividend policies deserve attention not merely as shareholder matters but as indicators of systemic stability. Banks that maintain sustainable dividend practices while meeting capital adequacy standards contribute to overall financial sector health.

Looking Forward

As Nigerian banks continue modernizing operations, expanding financial inclusion through digital channels, and responding to macroeconomic pressures, dividend policy will remain a crucial element of corporate strategy. The tension between rewarding current shareholders and investing for future growth requires ongoing calibration.

Dr. Ayodele’s research provides empirical grounding for these strategic decisions, demonstrating that thoughtful dividend policies serve multiple purposes: compensating investors, signaling confidence, and supporting market stability.

The complete study offers detailed statistical analysis and methodological insights for researchers, practitioners, and policymakers interested in corporate finance, banking strategy, and emerging market dynamics.

The full study is available here:

https://www.researchgate.net/publication/398831487_Dividend_Policy_and_Corporate_Performance_in_Nigerian_Banks_An_Empirical_Analysis

https://aimjournals.com/index.php/ijmbd/article/view/398/354