International Journal of Economics and Finance; Vol. 6, No. 11; 2014 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education 117 Product Market Competition and Dividend Payouts of Listed Non-Financial Firms in Nigeria Olufemi Obembe 1 , Joy Imafidon 2 & Abiodun Adegboye 1 1 Department of Economics, Faculty of Social Sciences, Obafemi Awolowo University, Ile-Ife, Nigeria 2 Department of Management and Accounting, Obafemi Awolowo University, Ile-Ife, Nigeria Correspondence: Olufemi Obembe, Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria. Tel: 1-234-803-691-6208. Email: f_obembe@yahoo.com Received: July 16, 2014 Accepted: July 29, 2014 Online Published: October 25, 2014 doi:10.5539/ijef.v6n11p117 URL: http://dx.doi.org/10.5539/ijef.v6n11p117 Abstract This study sought to examine the impact of product market competition on the dividend payout of non-financial firms listed on the Nigerian Stock Exchange. Data were collected on 76 non-financial firms for 11 years covering 1997–2007 and were analyzed using pooled OLS regression method with robust standard errors. Product market competition was measured by the reciprocal of market power. Our results showed that market power had a positive and significant impact on dividend payment suggesting that product market competition impact negatively on dividend payout of firms in Nigeria. Other factors that significantly and positively influenced dividend payment include profitability and size of firms while firms classified in the manufacturing sub-sector of the exchange paid significantly higher dividends than firms in the commercials and services’ sub-sectors. Finally firms that were financially constrained were found to pay significantly lower dividends compared with firms without financial constraints suggesting that Cash flow had a significant impact on dividend payout of firms in Nigeria. Keywords: non-financial firms, Nigerian Stock Exchange, OLS regression method 1. Introduction/Background The issue of determinants of dividend payments by firms has been one of the most researched topics in financial economics, this is because despite the many theoretical and empirical insights provided by several authors, factors determining dividend payments still remains a puzzling one as there has not been any unanimous agreement among researchers on specific factors that determine dividend payments. The search for the factors influencing dividend payments is underscored by the assertion that the shareholders’ wealth is affected by dividend payout ratio. Hence, there is a need to determine the optimal dividend payout ratio that maximizes shareholders’ wealth. Miller and Modigliani (1961) were however the first to dismiss the argument that dividend payout ratio has a correlation with firm value. They argued that dividend payment was purely a financial decision in which firms considered dividend payment after projects with positive Net Present Value (NPV) have been given due consideration for financing while funds remaining thereafter were paid as dividends. According to Miller and Modigliani (1961), the value of the firm is solely determined by the earning power of the firm’s asset, or its investment policy, while the allocation of funds between dividend payout and retention does not influence shareholders’ wealth in any way. Several researchers reacted to this assertion by pointing out that dividend payments indeed could affect shareholders’ wealth. They argued that under conditions of uncertainty which was assumed away by Miller and Modigliani, certain factors could cause dividend payments to affect the value of the firm (Lintner, 1956; Gordon, 1959, 1962). For instance, payment of dividends was believed to resolve some uncertainties as regards profitability of firms. The incentive that enables shareholders to wait for share appreciation at future distant time is the dividends that are paid in the current period. Thus, shareholders were believed to be willing to offer higher prices to purchase shares of firms that are paying dividends rather than the non-paying ones. Moreover, dividend payout is believed to act as a financial signaling device to shareholders (Bhattacharya, 1979). This argument was based on the fact that existing accounting information was inadequate at communicating the true nature of the profitability of a firm, hence, when a firm announces dividend payments over and above previous payouts, share prices were expected to react favourably to this occurrence.