Macroeconomic Variables and Retained Earnings of Quoted Manufacturing Firms in Nigeria: A Time Variant Study
This study examined external factors that determine retained earnings of quoted manufacturing firms in Nigeria. Annual time series data were sourced from Central Bank of Nigerian Statistical Bulletin, and Annual Reports of the selected manufacturing firms, the study modeled retained earnings the function of money supply, exchange rate, oil price, inflation rate and interest rate. The ordinary Least Square method was employed with multiple regression model based on Statistical Package for Social Sciences version (22.0). The Durbin-Watson statistics show the presence of multiple serial autocorrelation.The result shows collinearity that corresponds with the Eigen value condition index and variance constants are less than the required number, while the variance inflation factors indicate the absence of auto-correlation.It was found that Oil price have positive impact on retention rate of the selected manufacturing firms while exchange rate and interest rate have negative impact on the dependent variable. It was also found that money supply have negative effect on dividend payout rate while inflation rate have positive impact on retention rate. From the findings we conclude that oil price, interest rate, exchange rate and money supply have no significant relationship with dividend policy while inflation rate have significant relationship with dividend policy of the selected quoted manufacturing firms. We recommend the need for the manufacturing firms to formulate policies that leverage the negative effect of macroeconomic variables on retained earnings of the manufacturing firms and interest rate should properly be defined in the Nigerian financial market that is either full deregulated or regulated to determine the market rate of return, investment and the profitability of manufacturing firms. The operational efficiency of Nigerian capital market and the financial environment should be deepened, existing laws that does not encourage profitable investment should be changed and new laws enacted to enhance investment that will affect the profitability of manufacturing firms positively.
Amihud, Y., and Murgia, M., (1997). Dividends, Taxes, and Signaling: Evidence from Germany. Journal of Finance, 5 (8), 397-408.
Asquith, P., and Mullins, D.W., (1983). The Impact of Initiating Dividend Payments on Share Holder’s Wealth. Journal of Business, 56 (1), 77-96.
Basse, T., &Reddemann, S. (2011). Inflation and the dividend policy of US firms. Economics Watch, 6 (4) 333-64.
Brigham, E. F. (2016).Financial Management: Theory and Practice with Thompson ONE; Canada, Dryden Press
Dagogo, D. W., & Obara, L. C. (2015). Comparative analysis of earnings rate, retention rate, and dividend yield as determinants of capital growth. International Journal of Economics and Finance7(2), 214-224.
Davies, S. D., & Lucky, A. L., (2018). Corporate Characteristics and Influence on Share Based Payment of Financial Service Firms in Nigeria. Asian Finance & Banking Review, 2 (1), 18-29.
Fattouh, F. (2007). The Relationship between dividends and earnings. Journal for Economic Educators, 4(4), 1 – 5.
Hamilton, A., (2009).The impact of initiating dividend payments on shareholders' wealth. Journal of Business 12(8), 77-96.
Kiptoo S. C. (2010). An empirical investigation of the relationship between selected macroeconomic variables and stock prices: Evidence from the Nairobi Stock Exchange, Unpublished MBA Project, University of Nairobi.
Lucky, A.L (2017). Prudential determinants of commercial banks soundness in Nigeria. M.Sc thesis submitted to postgraduate school Rivers State University.
Miller, M. H., & Modigliani, F. (1961). Dividend policy growth and the valuation of shares. The Journal of Business, 34, (4), 411-433.
Ndungu, A. (2009). Determinants of dividend policy: Evidence from the Nairobi Stock Exchange, Unpublished MBA Project, University of Nairobi.
Ngunjiri (2013). Comparative Analysis of Earnings Rate, Retention Rate, and Dividend Yield as Determinants of Capital Growth. International Journal of Economics and Finance; 12(3),604-627.
Ochieng, D. E., &Kinyua, W. H., (2013). Relationship between Inflation and Dividend Payout for Companies Listed At the Nairobi Securities Exchange. International Journal of Education and Research 1 (6), 78 - 102.
Odiero (2013).The effect of retained earnings on the returns of firms listed at the Nairobi securities exchange companies. The retention ratio is also known as the retention rate of an organization. Journal of Accounting and Taxation, 2(4), 189-209.
Pettit, R., (2004). Taxes, Transactions Costs and the Clientele Effect of Dividends. Journal of Financial Economics, 5(3), 419-436.
Sifunjo, K. (1999). The causal relationship between exchange rates and stock prices in Kenya. Unpublished MBA Project, University of Nairobi.
Copyright (c) 2018 Ngozi G. Iheduru, Charles U. Okoro
This work is licensed under a Creative Commons Attribution 4.0 International License.