Version 1
: Received: 21 July 2024 / Approved: 22 July 2024 / Online: 22 July 2024 (18:05:13 CEST)
How to cite:
Njoku, O.; Lee, Y. The Interaction Effect of Leverage and Dividend Policy on Firm Value: Empirical Evidence from Nigerian Firms. Preprints2024, 2024071757. https://doi.org/10.20944/preprints202407.1757.v1
Njoku, O.; Lee, Y. The Interaction Effect of Leverage and Dividend Policy on Firm Value: Empirical Evidence from Nigerian Firms. Preprints 2024, 2024071757. https://doi.org/10.20944/preprints202407.1757.v1
Njoku, O.; Lee, Y. The Interaction Effect of Leverage and Dividend Policy on Firm Value: Empirical Evidence from Nigerian Firms. Preprints2024, 2024071757. https://doi.org/10.20944/preprints202407.1757.v1
APA Style
Njoku, O., & Lee, Y. (2024). The Interaction Effect of Leverage and Dividend Policy on Firm Value: Empirical Evidence from Nigerian Firms. Preprints. https://doi.org/10.20944/preprints202407.1757.v1
Chicago/Turabian Style
Njoku, O. and Younghwan Lee. 2024 "The Interaction Effect of Leverage and Dividend Policy on Firm Value: Empirical Evidence from Nigerian Firms" Preprints. https://doi.org/10.20944/preprints202407.1757.v1
Abstract
This study investigates the dynamic relationship between leverage and dividend policy in Nigerian manufacturing enterprises. Utilizing panel data from 26 firms between 2016 and 2020, our findings reveal that while dividend payments boost firm value, leverage typically diminishes it. Intriguingly, when leverage interacts with dividend policy, the combined effect on firm value becomes significantly positive. This observation, despite Nigeria's institutional differences from advanced economies, supports modern capital structure theories such as the pecking order and static trade-off theories. Our results suggest that for mature Nigerian companies with limited growth opportunities, high leverage and dividends effectively mitigate the "free cash flow" problem, curbing managerial tendencies to overinvest or underinvest. Thus, leverage and dividends serve as complementary mechanisms for monitoring and controlling managerial discretion. Consequently, firms with high leverage ratios can leverage dividend policies as disciplinary tools, and vice versa. This underscores the necessity for Nigerian manufacturing firms to carefully balance debt and equity to sustain market confidence and investment potential.
Keywords
Leverage, Dividend Policy, Firm Value
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
