Dividend Policy and Shareholders' Wealth Among Nigerian Deposit Money Banks

This study investigates the effect of dividend policy — measured by dividend payout ratio (DPR) and dividend yield (DY) — on shareholders' wealth, proxied by stock price (SP) and stock returns (SR), in Nigerian deposit money banks (DMBs) over the period 2010–2024. Using an unbalanced panel dataset drawn from 14 listed commercial banks on the Nigerian Exchange Group (NGX), this study employs fixed effects (FE) and random effects (RE) panel regression models, with the Hausman specification test used to select the most consistent estimator. Six control variables — firm size (FS), firm profitability (FP), firm leverage (FLEV), growth opportunities (GO), firm age (FA), and liquidity (LIQ) — are incorporated to mitigate omitted variable bias. Post-estimation diagnostics including Wooldridge serial correlation tests, Modified Wald heteroscedasticity tests, and variance inflation factor (VIF) checks confirm the robustness of the estimates, with Driscoll-Kraay standard errors applied where cross-sectional dependence is detected. Results from the fixed effects models — preferred by the Hausman test — reveal that DPR and DY both exert statistically significant positive effects on SP and SR at the 1% significance level, lending strong empirical support to the dividend relevance theory, bird-in-hand hypothesis, and signalling theory. These findings are robust across both dependent variable specifications. Among control variables, FP and FS are positively significant, FLEV is negatively significant, and GO, FA, and LIQ show positive but comparatively weaker effects. This study contributes novel evidence to the thin empirical literature on dividend policy in African banking sectors, with particular relevance for regulators, investors, bank management, and policymakers navigating Nigeria's evolving financial market landscape.