Dividend Policy, Information Asymmetry, and Investor Behavior on the Nigerian Exchange Group

This study empirically investigates the relationship among dividend policy, information asymmetry, and investor behavior in companies listed on the Nigerian Exchange Group. Information asymmetry between corporate insiders and external investors is particularly acute in emerging markets like Nigeria, where financial disclosure quality is uneven and analyst coverage is limited. Dividend policy has long been theorized as a signaling mechanism through which management communicates private information about future earnings prospects to the market. This study uses panel data from 40 dividend-paying listed companies across multiple sectors for the period 2016 to 2023. Dividend policy is measured using dividend payout ratio and dividend yield. Information asymmetry is proxied by bid-ask spread, analyst forecast dispersion, and trading volume volatility. Investor behavior is assessed through abnormal stock returns around dividend announcement dates and post-announcement trading volume changes. Event study methodology and panel regression with instrumental variable estimation are applied. Results indicate that dividend announcements generate significant positive abnormal returns, consistent with dividend signaling theory. The magnitude of investor response is significantly moderated by information asymmetry, with higher asymmetry amplifying market reactions to dividend changes. Dividend reductions are associated with large negative abnormal returns and volume spikes. The study concludes that dividend policy is a potent information signaling mechanism in Nigeria's information-scarce capital market environment. It recommends that listed companies adopt transparent dividend communication strategies to reduce information asymmetry and stabilize investor expectations.

Keywords: dividend policy, information asymmetry, investor behavior, Nigerian Exchange Group, signaling theory.