The Impact of Dividend Policy on Equity Investors' Decision-Making in Emerging Markets: Evidence from Nigeria

This study examined the impact of dividend policy on equity investors’ decision-making in emerging markets, with specific reference to Nigeria. Three behavioural sub-constructs are operationalized: investment decisions proxied by share price change, long-term investment commitment proxied by buy-and-hold propensity, and portfolio allocation decisions proxied by trading volume response to dividend changes. The study adopts an explanatory panel research design using secondary data from 15 consistently dividend-paying companies listed on the Nigerian Exchange Group for the period 2020 to 2025, yielding 90 firm-year observations. A Fixed Effects estimator, selected via the Hausman specification test (Chi-square = 18.43; p = 0.002), with Driscoll-Kraay standard errors to correct for cross-sectional dependence, serial correlation, and heteroskedasticity, is employed. Panel stationarity is confirmed via Im-Pesaran-Shin unit root tests, and Variance Inflation Factors confirm the absence of harmful multicollinearity. The findings reveal that dividend payout ratio (beta = 0.284; p = 0.006), dividend stability (beta = 0.356; p = 0.002), and dividend changes (beta = 0.178; p = 0.028) each exert positive and statistically significant effects on share price change as a proxy for investor decision-making. Dividend stability measured as a recoded coefficient of variation such that higher values indicate greater stability emerges as the strongest predictor, indicating that payment consistency enhances investor confidence and long-term commitment. These results contradict the Dividend Irrelevance proposition and align with Signaling, Agency, and Bird-in-Hand theoretical frameworks. The study concludes that dividend policy is materially relevant to investor decision-making in the Nigerian capital market and recommends stable, transparent, and optimally calibrated payout policies.