DETERMINANTS OF RETAINED EARNINGS OF QUOTED MANUFACTURING FIRMS IN NIGERIA
Abstract
This work examined the determinants of retained earnings of quoted manufacturing firms in Nigeria. The study is anchored on Pecking Order Theory while an ex-post facto research design was adopted wherein secondary data sourced from financial statements of chosen quoted manufacturing firms in Nigeria covering a period of 10 years (2009 to 2018) were used for analysis. The result of the panel data regression analysis revealed that earnings retention ratio (ERR) have an inverse and insignificant effect on ROA; dividend payout ratio (DPR) have a direct and insignificant effect on ROA; while net profit margin (NPM) have a direct and significant effect on ROA of quoted manufacturing firms in Nigeria. This implies that any increase in ERR (other predictors being constant) will lead to a decrease in ROA while any increase in DPR and NPM (other predictors being constant) will lead to a corresponding increase in ROA. The study concluded that retained earnings significantly determines the growth of quoted manufacturing firms in Nigeria and therefore recommends that the dividend policy to be considered any period should be in respect to the worthwhile nature of the potential investment opportunity. Also, the management should always ensure consistency in declaration and payment of dividends to enhance the confidence of investors. Lastly, an effective marketing strategy in the area of pricing, research, promotion and innovation should be established to enhance the desirability of the firm’s products, exploit the available market opportunities, increase profitability and stimulate consistent growth.
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