Determinants of dividend payout: A case of banking sector in Ethiopia

AshEse Journal of Business Management                                                                  

Vol. 1(5), pp. 051-056, October, 2015

ISSN 2059-7835

© 2015 AshEse Visionary Limited  

 

Case Report

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.

*Corresponding author. E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

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.

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