EFFECT OF CORPORATE INCOME TAX ON DIVIDEND POLICY ON QUOTED DEPOSIT MONEY BANKS IN NIGERIA
Halima Abubakar, Josephine Ene, PhD and Inuwa M. Bala,PhD
Volume 5 Issue 1
Abstract
This study analyses the effect of Corporate Income Tax (CIT) on Dividend Payout Ratio (DPO), Dividend Yield (DY) and Dividend Per Share (DPS) of quoted deposit money banks in Nigeria spanning the period 2019-2023. Using panel data, the study investigates whether DID affect these dividend metrics and will employ Pooled Ordinary Least Squares (OLS), Fixed Effects and Random Effects models. Secondary source of data were financial statements of 5 selected deposit money banks while models of regressions were used to test the relationship between CIT and all the dividend metrics. Across all models, CIT did not significantly increase DPO, DY, or DPS as p values are all greater than the 0.05 significance threshold. Therefore, these results show that tax obligations are not direct determinants of dividend policies in the Nigerian banking sector. Instead, other things, such as profitability, size of firm, regulatory policies and market strategies, are likely to be the more important determiners of a firm's dividend behaviour. The study revealed that dividend policy making by deposit money banks in Nigeria is little influenced by the policy of CIT and therefore, suggests that deposit money banks should orientate their dividend policy for profitability and operational efficiency. It proposes policy changes in the direction of environmentally and shareholder friendly growth but points out that this requires that tax policy be aligned with (corporate) profitability when it comes to dividend distribution. Keywords: Corporate Income Tax, Dividend Policy, Dividend Payout Ratio, Deposit Money Banks
Download Paper