Determinants of Dividend Payout Policy of Commercial Banks: Evidence from Selected Commercial Banks in Ethiopia

Desta Zelalem

doi:10.11648/j.ijfbr.20210702.11

Abstract

The study is about investigation of determinants of dividend payout ratio of commercial banks in Ethiopia over the period 2010-2018. Nine years Panel data was obtained from audited financial statements of 8 selected commercial banks in Ethiopia. The study used six independent variables such as financial leverage, profitability, age of firm, corporate tax rate, operating cash and extent of shares distributed and one dependent variable which is dividend payout ratio. Both descriptive and inferential statistics were used in order to interpret the findings of the study. Random effect regression was used to investigate the impact of determinant factors on the dividend payout policy of commercial banks in Ethiopia. Correlation was also conduct to understand the relationship between dependent and independent variables. The correlation analysis shows that, Return on Equity (ROE), Corporate Tax Rate (CTR), and Number of Shares Distributed (NSD) have Negative relationships with Dividend Payout Ratio (DPO). While the remaining independent variables; Debt Ratio (DR), Age of Firm and Cash to Total Assets Ratio (CTA) have positive relationships with Dividend Payout Ratio (DPO). The key finding of this study shows that, financial leverage is significant variable at 1%, while corporate tax rate, cash balance and extent of shares distributed are significant variables at 10% significant level in determining dividend payout ratio of commercial banks in Ethiopia. on the other hand, profitability and age of firm are not statistically significant variables in determining dividend payout ratio in commercial banks of Ethiopia.

Highlights

Dividend policy refers to the explicit or implicit decision of the board of directors regarding the amount of residual earnings that should be distributed to the shareholders of the company [20]
In order to investigate the impact of explanatory variables (Financial leverage, profitability, age of firm, corporate tax rate, operating cash and extent of shares distributed) on dependent variable (DPO) random effect regression was conducted
The above table presents the random effect model result of stata output used to investigate the impact of determinant factors on dividend payout ratio of commercial banks in Ethiopia

Summary

Introduction

Dividend policy refers to the explicit or implicit decision of the board of directors regarding the amount of residual earnings (past or present) that should be distributed to the shareholders of the company [20]. “It is the practice that management follow in making dividend payout decision or in other word the size and pattern of cash distribution over time to shareholders” [1]. Dividend policy is a one of the most debated topics and a core theory of corporate finance which still keeps its prominent place. Dividend decision is important for both the investors and corporations. It is the decision of organization management about what proportion of the earnings should be invested and what proportion should be distributed to shareholders as dividends. The dividend paid will be a form of return to the shareholders who invest in the organization [5]

Objectives

Methods

Results

Discussion

Conclusion