Dividend Policy as a Strategic Tool for Wealth Maximization Essay

12334 Words Apr 19th, 2013 50 Pages
CHAPTER ONE 1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
The owner or shareholder of any business expect their investment to earn a return that reward is expected to be commensurate with the perceived riskiness of the investment.
There are many alternative vehicles for the investment of capital, so a particular investment often be said to carry an opportunity cost. This is the difference between the actual return forgone from the alternative investment, olowe (1997) noted that the maximization of shareholders wealth is the most superior of all the objectives considers timing of return, take account of both return and risk and it balances short and long-term benefits. There is an important incentive sectors companies.
In the case of a
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If the firm pays low dividend, there will be high retained earnings for future investment opportunities. If the investment opportunities did not materialize, then dividends would be increased and share price falls (i.e. shareholders value falls) and the shareholders will be disappointed.
The problem is isolating the dividend increase from investors’ disappointment. This raises the question on the role of dividend policy in achieving wealth maximization.
Dividend policy has presented different issues to academicians and practitioners. What should the firm’s dividend policy be? What should the investors do about dividend policy? Does dividend policy really matter? These and more will be examined in the course of the study.
1.3 OBJECTIVES OF THE STUDY
The specific objectives of this study are as follow: 1. To examine and assess the dividend policy of Nigerian companies in terms of shareholders wealth maximization? 2. To investigate the relevance of dividend policy to investor. 3. To identify the critical factors that influence dividend policy.
1.4 RESEARCH QUESTION
The research question which would guide these studies is as follows: 1. Has the dividend policy of Nigerian companies be efficiency and effective in term of wealth maximization? 2. To what extent is the dividend policy relevance to Nigerian investors? 3. What are the factors that influence dividend policy in achieving maximization?
1.5 HYPOTHESIS STATEMENT
Ho:
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