TABLE OF CONTENT
Title page
Approval page
Dedication
Acknowledgment
Abstract
Table of content
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
1.2 Statement of problem
1.3 Objective of the study
1.4 Research Hypotheses
1.5 Significance of the study
1.6 Scope and limitation of the study
1.7 Definition of terms
1.8 Organization of the study
CHAPETR TWO
LITERATURE REVIEW
CHAPETR THREE
3.0 Research methodology
3.1 sources of data collection
3.3 Population of the study
3.4 Sampling and sampling distribution
3.5 Validation of research instrument
3.6 Method of data analysis
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS AND INTERPRETATION
4.1 Introductions
4.2 Data analysis
CHAPTER FIVE
5.1 Introduction
5.2 Summary
5.3 Conclusion
5.4 Recommendation
Appendix
Abstract
The study assessed the effect of corporate taxation on dividend policy of listed consumer goods companies in Nigeria. Data for the study was collected using questionnaire administered to the staff, management and companies investors. A survey and descriptive design was adopted for the study, SPSS Chi-square statistics were employed to test the hypotheses of the research. The study demonstrated that corporate taxation and board structure have no effect on dividend policy of firms. The results also imply that performance of companies is an important determinant of dividend policy. The study recommended that companies should pay more attention to other determinants of dividend like liquidity and not to concentrate on taxes since taxes have no effect on dividend policy. Also companies should devise other means of generating funds by expansion and diversification in order to boost their earnings.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Numerous studies have been conducted on taxes and dividend policy, yet the subject matter still attracts the interests of many researchers. The finance profession has long struggled to develop a simple satisfactory model of dividend determination and the government changes tax rates over time. Masulis & Trueman as cited in Nnadi & Akpomi (2008) observed that taxes affect organizational corporate dividend policy. If this speculation were true, changes in corporate dividend payout would be expected whenever the government changes its income tax policy (Wu, 1996 and Ekeocha, Ekeocha, Malaolu & Oduh, 2012). Dividend policy is in turn a parameter for measuring performance or survival of a company while the measures of dividend policy as stated by Linter (1956) as in Nnadi & Akpomi (2008) are the anticipated level of future earnings and the pattern of past dividend. Tax is a compulsory levy imposed by government on the incomes of individuals and corporate organization for the performance of its duties of social welfare and security. It is the responsibility of the government to provide all the important amenities which are needed to make life worth living. Hence, the government tries to generate the funds to carry out these activities through taxation which every organization is expected as a requirement to pay as part of its corporate social responsibilities. Dividend policy, on the other hand, forms a major financial decision often faced by management of corporate organizations in their pursuit of maximizing the value of their organization. Dividend policy allocates the earnings between payment to shareholders and reinvestment in the firm (Pandey, 1999). Corporate dividend policy should be designed to minimize the sum of capital and taxation costs. One of the important factors influencing these costs is the fraction of ownership held by institutional investors. Institutions are professional decision-makers who know how to assess the performance of the firm and to monitor the management. As a result, the degree of institutional ownership may have an effect on dividend policy. Also, in a related development, Jensen, Solberg & Zorn (1976) as cited in Odia & Ogiedu (2013) identified an inter-relationship between levels of insider ownership, leverage and dividend payout, with insider ownership negatively impacting on debt and dividend levels. Also the relationship between ownership structure and dividend policy has been emphasized by LaPorta, Silanes, Shleifer & Vishny (2000), Gugler & Yurtoglu (2003), Da Silva, Goergen & Renneboog (2004) (as cited in Odia and Ogiedu, 2013). The issue of dividend policy is a very important one in the current business environment. Dividend policy remains one of the most important financial policies not only from the viewpoint of the company, but also from that of the shareholders, the consumers, employees, regulatory bodies and the Government. For a company, it is a pivotal policy around which other financial policies rotate (Alii et al., 1993). Dividend or profit allocation decision is one of the four decision areas in finance. Dividend decisions are important because they determine what funds flow to investors and what funds are retained by the firm for investment (Rossetal.,2002). More so,they provide information to stakeholders concerning the company’s performance. Firm investments determine future earnings and future potential dividends, and influence the cost of capital (Foong et al., 2007).So many factors affect the performance of corporate organizations and one of those factors is dividend policy. Dividend policy serves as a mechanism for control of a managerial opportunism. Empirical studies show that firms in developing Countries (e.g. Nigeria) smooth on their income and therefore, their dividends. The pattern of corporate dividend policies not only varies over time but also across countries, especially between developed, developing and emerging Capital markets. If the value of a company is the function of its dividend payments, dividend policy will affect directly the firm’s cost of capital. Dividend policy is a sensitive subject of discourse in corporate financial management, as it relates to decisions regarding how the present and future finance of an organization is catered for without sending negative signals to shareholders (Okafor and Mgbame, 2011). Dividend policy revolves around making decision between distribution of present return and reinvestment of the same for future return (Pandey & Ashvini, 2016; Kouser, Luqman, Yaseen, and Azeem, 2015). The framework of dividend policy of any organization reflects on the availability of investment opportunities and how these opportunities are being embraced for future expansion and growth (Afza & Mirza, 2011). Dividend policy is a corporate finance decision on transfer of value in form of share dividend from an organization to its shareholders, out of the profit made from the business operation for a specified period of time usually a year (Okafor and Mgbame, 2011). Expanding on the importance of dividend policy as management strategy for sustaining improved corporate performance. Ajanthan (2013) established that effective management of an organization as perceived by shareholders connect to how earnings is distributed in form of dividend over time. Structure of dividend policy is a framework that outlines the fraction of a company’s earnings that is declared as return on shareholder’s investment for a specific period of time, either in form of cash dividend or stock dividend (Abdul and Muhibudeen, 2015). Relating dividend policy to corporate performance had been given keen attention by scholars around the world such as Pandey and Ashvini, (2016); Kouser, Luqman, Yaseen, and Azeem, (2015); Zameer, Rasool, Igbal and Arshad, (2013); Amidu, (2007); Marfo-Yiadom, and Agyei, (2011); Murekefu, and Ouma, (2013); Priya, and Nimalathasan, (2013). Observably, such investigation had also found its path among scholars in Nigeria such as Abdul and Muhibudeen, 2015; Akani, and Sweneme, 2016; Adesola, and Okwong, 2009; Ajanthan, 2013; Okafor and Mgbame, 2011; Abiola, 2014; Akani, and Sweneme, 2016; Jacob and Akinselure, 2016; Yusuf 2015 to mention but few. Overview of the relevance of dividend policy in the discourse of corporate performance on empirical ground reflects divergence yet to be resolved (Abdul and Muhibudeen, 2015). Over the years, Nigerian tax system has been geared towards raising funds to meet government expenditure at all levels (federal, state, and local), neglecting the need to sustain a system potent enough to foster rapid industrial expansion and growth (Ezugwu and Akubo 2014). This is evident by the poor level of infrastructural facilities in the country, resulting from poor allocation of revenue generated by the government for development project, not to mention the undue and unchecked perennial problem of public fund misappropriation in the country. This malaise had hither-to dampen the prospect of companies for growth and expansion in the country. In clear terms, firms now pay taxes without any identifiable benefit accrued to them or the environment of operation. In Nigeria today companies could not but device means to evade, avoid and/or objectively transfer tax burden to the society. They either increase prices of goods and services and/or deny shareholders return on their investment in the name of retaining earnings for reinvestment. Expanding on the issue of dividend payment, it can be observed that most of firms quoted on the Nigeria stock exchange fill relax even when they don’t declare any dividend at the end of the financial calendar. For instance in 2016 only 82 companies declared dividend out of all firms quoted on the Nigeria stock exchange, with financial service sector, consumer goods sector and industrial goods sector dominating the list (Proshare, 2017).
1.2 STATEMENT OF THE PROBLEM
In Nigeria, personal income from dividends is taxable while its equivalent from capital gains is exempted from taxation. Theoretically, the Nigerian corporate tax system is therefore skewed in favour of retention of profits for further investments. However, empirical research shows that majority of Nigerian listed companies distribute earnings in the form of cash dividends to shareholders (Adelegan, 2009). Thus, Nigeria with its distinctive tax system presents an excellent opportunity for research to examine the actual motivation for paying dividends, despite the tax consequences associated with such a disbursement. The current study therefore intends to examine taxation and dividend policy of listed consumer goods companies in Nigeria.
1.3 OBJECTIVE OF THE STUDY
The main objective of this study is to examine taxation and dividend policy of listed consumer goods companies in Nigeria, but to aid the completion of the study, the researcher intend to achieve the following specific objectives;
- i) To examine the effect of taxation on dividend payout ratio of listed consumer goods companies in Nigeria
- ii) To examine the relationship between taxation and dividend policy of listed companies in Nigeria
iii) To ascertain the possible impact of a firm’s dividend policy may have on financial performance of firms listed in the Nigerian Securities Exchange
- iv) To examine the role of taxation in dividend policy of listed consumer goods companies in Nigeria.
1.4 RESEARCH HYPOTHESES
The following research hypotheses were formulated by the researcher to aid the completion of the study
H0: there is no significant relationship between taxation and dividend policy of listed companies in Nigeria
H1: there is a significant relationship between taxation and dividend policy of listed companies in Nigeria
H0: firm’s dividend policy does not have any impact financial performance of firms listed in the Nigerian Securities Exchange
H2: firm’s dividend policy does have an impact financial performance of firms listed in the Nigerian Securities Exchange
1.5 SIGNIFICANCE OF THE STUDY
It is believed that at the completion of the study, the findings will be of great importance to the management of the listed financial company as the study seek to examine the effect of taxation on dividend policy of an organization, the study will also be of great importance to the shareholders of the firm as the study seek to give insight to the lavage that tax authority gives to retain earnings of the organization, the study will also be of importance to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point to further studies. Finally, the study will be useful to academia's business tycoons, students, teachers and the general public as the study will contribute to the pool of existing literature and also add to knowledge.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers taxation and dividend policy of listed consumer goods companies in Nigeria, but in the cause of the study, there were some factors that limit the scope of the study which is beyond the researchers control;
- Data collection: Well established data are not easily available.
- Sizeable quantity of information obtained from papers were in organization and sometimes complex.
- Reluctance of the respondent to fill the questionnaires.
1.7 OPERATIONAL DEFINITION OF TERMS
Taxation
A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law.
Dividend policy
Dividend policy is the set of guidelines a company uses to decide how much of its earnings it will pay out to shareholders. Some evidence suggests that investors are not concerned with a company's dividend policy since they can sell a portion of their portfolio of equities if they want cash.
Consumer goods
A consumer good or final good is any commodity that is produced or consumed by the consumer to satisfy current wants or needs. Consumer goods are ultimately consumed, rather than used in the production of another good.
Listed companies
A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets
1.8 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows. Chapter one is concern with the introduction, which consist of the (background of the study), statement of the problem, objectives of the study, research questions, research hypotheses, significance of the study, scope of the study etc. Chapter two being the review of the related literature presents the theoretical framework, conceptual framework and other areas concerning the subject matter. Chapter three is a research methodology covers deals on the research design and methods adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.
