Chasing Shareholder Happiness at the Expense of Equity Performance: A Revisit of Dividend–ROE Trade-offs

Chitom Racheal JohnAkamelu; PhD; Kelechi Margaret Amasiatu; Gilbert Ogechukwu Nworie

doi:10.56201/wjfir.v9.no8.2025.pg67.78

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Chasing Shareholder Happiness at the Expense of Equity Performance: A Revisit of Dividend–ROE Trade-offs

Chitom Racheal JohnAkamelu, PhD, Kelechi Margaret Amasiatu, Gilbert Ogechukwu Nworie

Abstract

The distribution of profits through dividends is meant to serve as a means of sharing financial success while still ensuring that the firm’s capital base remains strong enough to finance future investments. However, the growing pressure from shareholders and financial markets often compels management to prioritize short-term payouts over long-term sustainability. As a result, some companies distribute a larger proportion of their profits as dividends, leaving limited funds for reinvestment and operational expansion. Hence, this study examined the effect of dividend payout on equity performance, proxied by return on equity. The study adopted an ex-post facto research design, utilizing historical financial data to analyze relationships without manipulating variables. The population comprised all twelve industrial goods firms listed on the Nigerian Exchange Group as of 2024, from which nine firms with complete audited reports for the period 2015 to 2024 were purposively selected as the sample. Secondary data were collected from audited financial statements. The hypotheses were tested at 5% significance level using Cross-section Seemingly Unrelated Regression to account for potential correlations among firms’ error terms. The study found a significant negative effect of dividend payout on equity performance, indicating that excessive distribution of profits to shareholders can reduce firms’ capacity to generate returns, and it is concluded that balancing shareholder satisfaction with the retention of earnings is a sine qua non for sustainable growth. Hence, firm board of directors should limit the dividend payout ratio to a level that does not compromise retained earnings needed for operational investment and expansion. Specifically, the board could set a maximum payout threshold (based on historical profitability and cash flow projections) so that sufficient funds remain for capital projects, debt servicing, and working capital

Keywords

Dividend PayoutReturn on EquityEquity Performance

References

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Chasing Shareholder Happiness at the Expense of Equity Performance: A Revisit of Dividend–ROE Trade-offs

Abstract

Keywords

References

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