Department of Economics, Faculty of the Social Sciences, University of Ibadan, Ibadan, Nigeria
Akintoye, I.R., Department of Economics, Faculty of the Social Sciences, University of Ibadan, Ibadan, Nigeria
This study is borne out of the need to establish the presence or otherwise of the responsiveness of EBIT, EPS and DPS as performance indicators to turnover, which is a measure of leverage, with respect to selected Food and Beverages companies in Nigeria. We computed the degree(s) of Leverage(s) ratios - i.e the DOL, DFL, DCL, as well as the percentage change in DPS relative to percentage change in EBIT inorder to achieve our study's objective. Our results reveal that performance indicators used in our study are significantly sensitive to the capital structure, for most of the companies considered in our study. Our findings reveal the followings: • Most of the companies used have their EBIT, EPS and DPS sensitive to turnover, which is in support of the apriori expectation. • Results from Nigerian Bottling Company Plc, negate the apriori expectation, as an increase in its turnover in year 2004, does not result in a corresponding increase in its EBIT, let alone EPS and DPS, rather a loss of 44.9% was recorded. • Results from Nestle Nig. Plc, Cadbury Nig. Plc and 7-Up Bottling Co Plc, also support the apriori expectation of a positive relationship between performance indicators and turnover. We also discovered that shareholders in most of the companies considered enjoy double benefits of dividend declaration and wealth creation; hence, the study disputes the present dividend theory which believes that organizations shareholders either support dividend declaration or wealth creation and not the two. Our study shows that both dividend declaration and wealth creation could be relevant to shareholders. We therefore conclude based on our findings, that irrespective of the dividend policy adopted by an organization, the rate of change in capital structure is a major influence on what organisations behaviour is likely to be. In addition this study lend credence to developing a third school of thought in dividend theory, to provide a place for the relevance of both dividend declaration and wealth creation to shareholders as against the present dividend theory which provides for either, of these two schools.