Moderating Effect of Share Price on the Relationship Between Capital Structure and Dividend Payout of Quoted Agriculture Firms in Nigeria

Abstract

Scholars have attempted to analyze the capital structure and dividend payout interface to determine their extent, nature, and significance using different proxies with mixed results. However, the moderating effect of share price on the link has yet to be empirically assessed. Therefore, this study examined the moderating effect of share price on the relationship between capital structure and dividend payout of quoted agriculture firms in Nigeria. Debt-equity ratio and debt-assets were the proxies of capital structure, while dividend payout ratio measured dividend payout. Signaling Effect, Bird in Hand, and Efficient Market Theories underpinned the study. Adopting an ex-post facto research design, the panel data sourced from annual published accounts of the firms of analysis were analyzed, and hypotheses were tested using STATA 13 software. The findings showed that debt-equity ratio and debt-assets ratio each has an insignificant effect on the dividend payout ratio of quoted agriculture firms in Nigeria. Furthermore, market price has a positive and insignificant moderating effect on the relationship between debt-equity ratio and dividend payout ratio, while it has a negative and significant moderating effect on the relationship between debt-assets ratio and dividend payout ratio of quoted agriculture firms in Nigeria. It implied that market price is a major determinant in the interface between debt-asset ratio and dividend payout ratio of quoted agriculture firms in Nigeria. It is recommended that firms use an optimal debt-equity mix to finance strategic productive assets and consistently pay competitive dividends to shareholders. Additionally, quoted agriculture firms in Nigeria should consistently provide information that can fuel bullish market sentiments, thereby triggering a surge in the market price of shares, which attracts investors and maximizes shareholders’ wealth.