AshEse Journal of Business Management
Vol. 1(5), pp. 051-056, October, 2015
© 2015 AshEse Visionary Limited
Dakito Alemu Kesto1* and J. Ravi2
1Addis Ababa University, P.O. Box 1176, Addis Ababa University, Addis Ababa, Ethiopia.
2Department of Commerce and Management Studies, College of Arts and Commerce, Andhra University, India.
Received August, 2015; Accepted September, 2015.
Investors expect return on investment which is in the form of capital gains and/or dividend. The objective of the study was to ascertain what accounts for dividend payout in the Ethiopian banking industry taking profit after tax, shareholders fund and liquidity as determinants of dividend payout. Both primary and secondary data collected were analyzed using descriptive and multiple regressions model, and generalized moment method (GMM) of estimation. The result showed that profitability and lagged value of last year dividend had a significant positive effect on the level of current dividend payout of the banking sector in Ethiopia at 1% and 10% respectively. Contrary to this, the impact of Liquidity on the level of dividend payout of the banking industry had a negative effect at 1% significance level as it can be expected in the banking sector because their total operations are based on liquid cash so even in case of high liquidity banks prefer to maintain a substantial amount of liquid cash to smooth out operations. Similarly, shareholders’ fund had negative effects on the level of dividend payout of the banking sector in Ethiopia though insignificantly. Moreover, the dividend is distributed to investors mostly in the form of cash as they rarely distribute stock to investors and also the average dividend paid by banks over the study period was 546 million birr. To conclude, the findings were similar and supported by previous studies` results undertaken by different researchers globally.
Key words: GMM, dividend payout, Profitability, Shareholders Fund, Liquidity.