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Dividend Policy and Earnings Risk Transmission in Nigerian Commercial Banks: A Panel Volatility Approach

Nyeche Ndidi & Suka Lenu Charle Adamgbo

Abstract

This study examined the relationship between dividend policy and earnings volatility among quoted commercial banks in Nigeria using a panel GARCH approach. The study adopted a quasi- experimental research design and utilized secondary data obtained from the annual reports and accounts of 14 quoted commercial banks listed on the Nigerian Exchange Group over the period 2016-2025. The analysis incorporates dividend payout ratio, dividend per share, dividend yield, dividend payout stability, and earnings per share as explanatory variables. Results revealed that none of the dividend policy variables exert statistically significant influence on earnings volatility. The variance equation indicates that neither the ARCH term (p = 0.6471) nor the GARCH term (p = 0.5056) achieves significance, suggesting that earnings volatility is not adequately captured by standard volatility specifications. Despite individual coefficient insignificance, the model demonstrates collective explanatory power (R2 = 0.6240), with the Durbin-Watson statistic (1.9376) confirming absence of serious autocorrelation. These findings diverge from theoretical expectations and prior empirical evidence, suggesting that regulatory interventions and macroeconomic volatility dominate firm-level dividend decisions in the Nigerian banking context. The study recommends that bank management prioritize operational efficiency and asset quality over dividend adjustments for earnings stabilization; that financial regulators focus on capital adequacy and risk management as primary stability instruments; and that investors complement dividend analysis with comprehensive assessments of asset quality and management effectiveness.

Keywords

Dividend PolicyEarnings VolatilityCommercial BanksGARCH ModelNigeria

References

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