Signaling Theory in Action: How Dividends Affect Shareholder Investment Decisions in Nigerian Deposit Money Banks

The study examined how dividends influence shareholder investment decisions in Nigerian listed deposit money banks, thereby testing the applicability of Signaling Theory in this context. Investment decision was measured using the amount of equity shareholding in the bank. Ex-post facto research design was applied on the population of all the thirteen (13) listed deposit money banks in Nigeria. The study employed purposive sampling to select ten (10) deposit money banks. Secondary data were sourced from the annual report and accounts of the selected listed banks for ten (10) years from 2013 to 2022. The study utilized Pooled least square regression technique with the aid of Eviews statistical software to test the null hypothesis. The finding showed that dividends significantly increased the amount of equity shareholding among listed deposit money banks in Nigeria (p-value = 0.0000). In conclusion, higher dividends not only signals a bank's current financial health but also enhances investor confidence in its future prospects, leading to greater equity shareholding. Therefore, we recommend that managers of deposit money banks in Nigeria should establish and consistently adhere to transparent dividend policies, providing clear criteria for distribution and maintaining a reliable track record of payouts to build investor confidence.