CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
There is no doubt that the business sector plays a significant role in the economy of Nigeria Firms should choose and adjust their strategic mix of securities in order to maximize the value of the firm and ensure that their operation are not either highly geared or too loudly geared in other to achieve optimum capital structure and efficient determination of appropriate capital and efficient dividend policy. Thus the determination of appropriate capital requirement and source of raising fund are highly important. This is because finance represents the heart of all businesses. Lack of adequate capital structure and dividend policy has always been identified as the major causes of business failure in Nigeria. Firms are regulated and in order to raise capital for operations, they have to mix both debt and equity strategically for the purpose of achieving an optimum capital structure.
The capital structure of the company is the blend of current and long term debt; owner equity sources of endowments to funds its long term assets. Aligning the dividend policy and capital structure with the company’s strategy is crucial task and need critical analysis.
A company’s capital shows the unique strength and ability of an organization. You often bear of corporate officers, professional investors and analysis discuss a company’s capital structure and dividend policy, you may not known what they are or why you should even concern yourself will it, but the concept is extremely important because it can influence not only the return a company earns for its shareholder, but whether or not a firm survives in recession or depression.
In Nigeria, firms have not live up to expectation of achieving optimum capital structure. It this is not achieved, it is at the peril of both the Providers of capital and the organization itself. Shareholders as national investor usually expect to receive some income as return on their investment. No wonder Foong (2001) posit that an investment made by a firm determine the future expansion projects. The ability of firm to pay dividend to her shareholder depends to a greater extent on the profitability during the period (Ruland and Zhou, 2005).
Literature postulates that whenever any organization makes financial decision. It has two major choices. First is the setting dividend policy and the second one is the capital structure engineering. Faur Kender, et al. (2006) present a theory in their research work which posits that capital structure and dividend policy mutually verity inherent governance mechanism to organize over project choice. Ronny Manos (2002) concluded that if more amounts is set back in retention, less eternal source of finance is needed and vice versa. So in the choice of financial policy, capital structure and dividend policy has a vital role. Shah and Khan (2010) contending that decision of capital structure is core of many other decision in corporate finance. Most of the theories emphases on the balance between debt and equity which is then known optimized capital structure is acquired by balancing its marginal benefits. It debt portion is increased, tax advantage can be achieved but it also can boost risk of financial distress and moving control to the investors.
Many middle class individual believed that the goal left is to be debt-free when you reach the upper echelons of finance, however, that idea is almost anathema. Many of the most successful companies in the world based their capital structure on one simple consideration. The cost of capital if you borrow money of 7% for 30 years in a world of 3% inflation and rain vest it in core operation of 15% in debt capital structure of course, how much debt you take on comes down to how secure the avenues your business generates are, if you sell an indispensable produce that people simple must have, the debt will be much liver risks than when you operate a theme park in a tourist fain at the height of a boom market. This research is therefore geared towards knowing the impact dividend policy and capital plays in organization productivity in Nigeria organization.
1.2 STATEMENT OF PROBLEMS
To truly understand the idea of a organization survival, you have to understand how dividend policy and capital structure represent one of the three components of determining the rate of return a company will earn on the money its owners have invested in it. Whether you own a doughnut shop or considering investing in publicly traded stock is the knowledge you simply must have. The problem of this research is to ascertain the impact of dividend policy on the capital structure plays on the profitability of organization in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The objectives of this research is to:
1) Truly analysis the conceptual meaning of capital structure and dividend policy.
2) Known the various forms of capital structure and dividend policy.
3) Ascertain the advantage and disadvantages of debt and equity and also provided a capital structure and calculation.
4) Examine the factor affecting capital structure and dividend policy with theories backing up showing their relevance.
5) Know the impact of dividend policy on profitability of Nigeria organization.
6) Identify the impact of capital structure design on organization in Nigeria.
7) They investigate the impact of dividend policy on the organization in Nigeria.
1.4 RESEARCH QUESTION
The research question of this topic includes;
1) Does capital structure and dividend policy pay any role in the profitability of an organization?
2) Do you think that capital structure and dividend policy should be fully embraced in the Nigeria organization?
3) Does capital structure and dividend policy increase an organization financial index consistently for some years?
4) Does the impact of capital structure design an organization in Nigeria.
5) How does the impact of dividend policy play a vital role on the organization in Nigeria?
1.5 RESEARCH HYPOTHESIS
The hypothesis for this research is:
1) H0: Capital structure and dividend policy has no significant impact on the profitability an organization.
HA: Capital structure and dividend policy has a significant impact on the profitability of an organization.
2) H0: Capital structure has no significant effect on organization in Nigeria.
HA: Capital structure has significant effect on the organization in Nigeria.
3) H0: Dividend policy has no significant effect on organization in Nigeria.
HA: Dividend policy has significant effect on organization in Nigeria.
1.6 SIGNIFICANT OF THE STUDY
This research work will be by major significant to three tiers of people
Tiers of people: organizations, government and the researcher. Through this research, the study will bring to light the diverse of debts uphold by the firm and how dissimilar level has impact on organization in Nigeria.
This study will beneficial for academics that are interested in getting more knowledge about this topic and also provide opportunity to other researcher to conduct further studies in the mentioned area.
The government of Nigeria will though this research see the need to offer full financial incentives of the general organization through the establishment of microfinance institution to cater for loan service which may arise.
The research will also find this study very useful as it will contribute to an increase in the knowledge and understanding of the concept of dividend policy and capital structure.
1.7 SCOPE AND LIMITATION OF STUDY
The scope of this study is center on Nigeria organization as regards to dividend policy and capital structure. The study will examine the meaning of dividend policy and capital structure, the various forms in which they takes and the factor determining their choice in organization. Some analysis and calculation will be preferred as regards capital structure and their relevance theories to the firm profitability. Here all will also look at some model and impact of dividend policy in Nigeria organization.
However, this study has some set back insufficient funds on the part of the researcher will pose a serious hindrance for a down to earth courage of this work.
Also long distance and the problem of getting information (data) from the insurance company will limit this work.
Lack of relevant literature in the firm of institution journals handbooks, and textbooks written from the Nigeria prospective to get detail information on the work constituted a major constraint in the course of this project.
Despite these constraints however, the researcher has to collect enough data upon which reliable information will be drawn.
1.8 DEFINITION OF TERMS