1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study




3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis



4.1 Introductions

4.2 Data analysis


5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation



This study is on the impact of taxes on the dividend policies of bank in Nigeria. The total population for the study is 200 staff of selected banks, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, accountants, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies



  • Background of the study

This study attempts to explore the impact of taxes on the dividend policy of banks in the Nigerian financial system. Dividend policy is the exchange between retaining earnings and paying out cash or issuing new shares to shareholders; it varies from one corporate organization to the other depending on various factors. One of such factors that have been identified is taxation- taxes the corporate organization must pay over to government from their profitability either directly (as tax on the corporation itself — corporate tax) or indirectly (as withholding tax on dividends paid out to shareholders). Corporate tax is paid directly on profit made, whether or not the company pays dividends to its shareholders and, in Nigeria, it is at the rate of 30% on taxable profits. Another such tax paid by the corporation in Nigeria, on profit made, is Education tax, which is 2% of taxable profits. Since such taxes are paid before profit available for possible dividend payment is known they reduce the amount of profit available for dividend payment. The indirect (withholding or dividend tax) is that levied by government on the proportion of profit paid out to shareholders as dividends; it is levied at the rate of 10% of the amount so paid out. This is normally in addition to the taxes on profit and is therefore sometimes referred to as a phenomenon of “double taxation”; intending to mean that company owners have paid tax twice on their earnings from the business – first, through tax on profit made and secondly, through dividend tax. Consequently, it becomes obvious that taxes are important to investors and may impact on the dividend policy to be adopted. This study attempts to study the level of such impact. Debates have been carried out by scholars on the impact of taxes on dividends and corporate financial policies for decades and many of these debates have generated a lot of controversies regarding the actual relationship between taxes and dividend policies. This, in turn, has attracted much of academic interests, consequent upon the need to settle the related controversies. The debate over the importance of dividend policy was first started by Miller and Modigliani (1961), who suggested that both firm financing and dividend policy were irrelevant for firm investment decisions and independent of the value of the firm. Financial theorists such as Brennan(1970), Masulis and Trueman (1988) have stipulated that taxes affect organizational corporate dividend policy. If this theory were true, then changes in dividend payout of the company would be anticipated every time the government changes its income tax policy. However, this does not always happen, especially in the banking business. Lintner (1956) asserted that the major determinants of dividend policy are the anticipated level of future earnings and the pattern of past dividends. This discrepancy may have underpinned M & M (1961) theory, which consequently provided a platform for the enormous debates and researches on dividend policy. It is worthy to mention that attention has been seriously focused on tax in these debates.

Tax is a compulsory levy imposed by government on the incomes of individuals and corporate organizations for the performance of its duties of social welfare. It is a levy imposed by the government against the income, profit or wealth of the individual, partnership and corporate organization (Ochiogu, 2001). Every corporate organization is therefore expected to pay taxes as one of its responsibilities to the society. Dividend policy, on the other hand, forms a major financial decision often faced by management of corporate organizations in their pursuit of maximizing the value of their organization. It allocates the company’s earnings between payment to shareholders and reinvestment in the firm. Dividends are usually paid to owners or shareholders of a business at specific periods and it depends largely on the declared earnings of the firm and the recommendations of the directors. Therefore, if no profit is made dividends will not be declared. But when profits are made the company is obligated to pay corporate tax and other statutory taxes to the government; the taxes reduce profit available for distribution/allocation by the organization. For several years, many postulations and assumptions have been made regarding whether such taxes paid by organizations actually affect a firm’s pattern of dividend policy, as already pointed out earlier. Although dividends affect the shareholders’ tax liability, it does not in general alter the taxes that must be paid regardless of whether or not the company distributes or retains its profit (Brealey, Myers and Marcus, 1999). Conscious of these postulations and assumptions surrounding dividend policy and all the associated controversies, this study is directed at evaluating the impact of taxes on the dividend policy of banks in Nigeria. The banking sector is of interest in this research because of the structure of its dividends. A couple of similar studies have been carried out in Nigeria but with approach different from what will be adopted in this study.


Problems are inevitable in achieving an end. The problem of whether or not there is a fundamental impact of taxes on dividend policy drives this research study. This is of considerable importance not only to management of financial institutions but also to investors planning portfolio, trying to develop a flow of investments. Again, there is the problem associated with the fact that empirical studies on the effect of taxes on dividend policy of banks have not reached a definite conclusion. Academicians have postulated several theories on what an ideal dividend policy should be but there seem to be a chasm with what is really obtainable in practice. There are extraneous factors dictating the tune of any policy to be applied by organizations. Financial theorists such as Wu (1996), etc., opined that evasion of taxes by a company is a key factor in the determination of the extent of which its dividend policy is affected. Miller and Scholes (1982) however admitted that taxes weigh tremendous influence on corporate dividend structure. Whether these are true has remained a matter of intense debate. The dividend irrelevant theory of M & M (1961) which assumes a perfect market is still very much held in contention but its principles underline most companies’ policies. Three contemporary schools of thought have emerged with theories, all attempting to explain the dividend structure vis-à-vis the impact of taxation. These include the dividend irrelevant theory, bird-in-hand theory and the tax preference theory; they will be visited in details later. The many varied opinions regarding dividend policy and taxes are not only examinable but mind probing for academic research. This research is therefore stimulated by the lack of clear cut empirical analysis and findings on the effects of taxes on corporate dividend policies, with specific application to the banking sector in Nigeria. The research will therefore attempt to ask the question “What impact does taxation have on corporate dividend policy as represented by the dividend pay-out ratio?” “What is the relationship between taxation and dividend pay-out ratio?” “Is there a significant relationship between taxation and dividend pay-out ratio?” “If there is a significant relationship between taxation and dividend pay-out ratio, in which direction is this relationship – are they positively related or negatively related?”
As a subsidiary to the above, this study will also attempt to explore the possible impact of profits on the dividend payout ratio and also answer questions relating to factors that affect dividend policies of banks in Nigeria


The objectives of the study are;

  1. To investigate the factors that affect dividend policies of companies, especially banks in Nigeria
  2. To find out the influence of profit/earnings on dividend policy of banks in Nigeria.
  3. To make recommendations on ways of achieving effective dividend policy.


For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0:   taxes have no impact on dividend pay-out of banks

H1: taxes have impact on dividend pay-out of banks

H02: there is no influence of profit/earnings on dividend policy of banks in Nigeria

H2: there is influence of profit/earnings on dividend policy of banks in Nigeria


The study will give a clear in sight on the impact of taxes on the dividend policies of bank in Nigeria. The study will be beneficial to students, government, bank and the general public. The study will serves as a reference to other researchers that will embark on this topic.


The scope of the study covers the impact of taxes on the dividend policies of bank in Nigeria. The researcher encounters some constrain which limited the scope of the study;

  1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
  2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
  3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities


TAX: A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law

DIVIDEND POLICIES:. Dividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. … Management must also choose the form of the dividend distribution, generally as cash dividends or via a share buyback.


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