Abstract
The main objective of this study was investigating factors that determine the dividend payout of private commercial banks in Ethiopia under the study period covering from 2009 to 2017. A balanced panel data set from national bank of Ethiopia and ten private commercial banks annual report was used and analyzed through fixed effects panel data regression technique. Dividend payout was used as a dependent variable and the independent variables covered under this study were both bank specific (profitability, leverage, liquidity, size and last year dividend payout) and macroeconomic factors (inflation rate, real GDP growth rate and foreign exchange rate). The finding shows that from bank specific factor; profitability, liquidity, bank size and last year dividend payout have statistically significant positive effect on dividend payout while leverage shows insignificant positive effect for dividend payout. From macroeconomic variables inflation rate have a positive effect, but the real GDP growth rate, and foreign exchange rate have a negative effect and foreign exchange rate is the only significant macroeconomic factor for dividend payout.The results of this study have delivered some insights on the effects of both bank specific and macroeconomic factor for dividend payout of private commercial banks in Ethiopia and managements and board of directors of those banks need to consider these variables while designing their dividend payout. In addition, government body specially financial sector should have to consider the effct of macroeconomic variables on dividend payout when they are making a policy about macroeconomic issues. Keywords : Commercial Banks, Bank Specific determinant, dividend payout and macroeconomic determinants. DOI: 10.7176/RJFA/12-3-03 Publication date: February 28 th 2021
Highlights
Banks in Ethiopia are an essential part of our economic system
The coefficient for liquidity is 0.1193412. This indicates that holding other variables constant a 1 percent increase in liquidity leads to an increase by 0.12 percent to dividend payout of the sampled private commercial banks in Ethiopia and the reverse is true.The result from this study is consistent with the researcher expectation
The researcher haven’t got enough reason to reject hypothesis 3, which stated that there is a significant positive relationship between liquidity and dividend payout private commercial banks in Ethiopia.The finding of this study is consistent to Theodros (2011) and the Jensen’s (1986) agency theory which stated that companies with higher free cash flow have higher dividend payout ratios
Summary
Banks in Ethiopia are an essential part of our economic system. The owners of those banks are Shareholders, and the bank distributes a portion of its earnings to those shareholders which is called dividend. Another decision is raised when the firm begins to generate profits which is concerned with whether the firm distributes proportion of earned profits in the form of dividends or should reinvest back into the business (Al-Malkawi, Rafferty, & Pillai, 2010; Alam & Hossain, 2012). Such a decision of the firm about how much earnings should be distributed, how stable the distribution should be, and how much should be retained is the a dividend payout decision (Chekole, 2016)
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