www.sciedu.ca/ijfr International Journal of Financial Research Vol. 4, No. 4; 2013 Published by Sciedu Press 140 ISSN 1923-4023 E-ISSN 1923-4031 Does Working Capital Management Matter in Dividend Policy Decision? Empirical Evidence from Nigeria Adesina Olugoke Oladipupo 1 & Peter Okoeguale Ibadin 1 1 Department of Accounting, Faculty of Management Sciences, University of Benin, Benin City, Nigeria Correspondence: Adesina Olugoke Oladipupo, Department of Accounting, Faculty of Management Sciences, University of Benin, Benin City, Nigeria. Tel: 234-80-5516-0668. E-mail: sinaoladipupo@yahoo.com Received: August 14, 2013 Accepted: September 16, 2013 Online Published: October 8, 2013 doi:10.5430/ijfr.v4n4p140 URL: http://dx.doi.org/10.5430/ijfr.v4n4p140 Abstract This study examines the relationship between dividend payout ratio and working capital management and the effect of firm’s working capital management practice on its dividend payout ratio. The working capital management is measured by the net trade cycle, current ratio and debt ratio. The data used in this study were obtained from twelve manufacturing companies quoted on the Nigeria Stock Exchange between 2002 and 2006. The data wer analysed using the Pearson product moment correlation technique and ordinary least square (OLS) regression technique. The results show that dividend payout ratio was influenced positively by profitability and net trade cycle but negatively by growth rate in earnings. Corporate profitability, working management, and growth in earnings have statistically insignificant effects on the dividend payout ratio at 5% confidence level. Hence, we can conclude that from this study working capital management is not significant in dividend policy decision. However, the result cannot be generalized owing to the problem of small sample size, seemingly poor model specification and failure to adopt the robust modern statistical technique provided by the fixed and random effects of panel data regression technique. Keywords: working capital management, corporate profitability, dividend payout ratio and growth in earnings 1. Introduction Increasing shareholders’ wealth either in form of dividend and/or capital gains is usually one of the things desired by any firm. Dividend refers to the return that accrues to shareholders as a result of the money invested in acquiring stock of a given company. In maximizing shareholders’ wealth, it becomes necessary therefore that both investment decisions and dividend decisions should be given serious attentions simultaneously. Investment decisions would involve the company deciding which project to accept and which one not to accept. Investment decisions would include decisions to raise funds to execute the projects accepted. On the other hand, dividend decisions focus on how a company determines what portion of its profits to retain and what proportion to pay out as dividend. Ross, Westerfeild and Jordan (1996) opined that the objective of dividend policy is to maximize shareholders’ return, which includes dividend and capital gains. For this reason, most firms are interested in how much of their earnings or profits they should pay out to shareholders and how much they should retain for further investment. Retention of earnings is encouraged for firm’s investment purposes without the involvement of shareholders. This would help the firms to avoid or minimise costs associated with borrowing and also avoid the dilution of control. However, it is important that the interest of the shareholders be considered because some are solely dependent on their returns (i.e. dividends). It is for this reason that Osaze and Anao (1990) observed that the role of a financial manager is to strike a balance between payout and retention of earnings. Dividend comes in several forms: cash dividend and capital appreciation. Cash dividend payment reduces corporate cash and retained earnings. Due to this fact many organisations sometimes decide to employ other forms of dividend that include stock dividends, stock split, and share repurchases apart from cash dividend (Pandey, 2004; Akinfure, 2006). While these alternatives can be considered, it is important to know that there may be investors such as retired individuals who would prefer current income to growth in stock value (Smith, 2008). This is true for some investors, especially when the dividend receivable from their investments is the sole means of survival or in a situation where the individual investors have better investment opportunities than that of the organisations. However, dividend payment is only possible if there is profit and that the profit is backed up by cash. There is