FACTORS AFFECTING CORPORATE DIVIDEND PAYOUT DECISIONS (Evidence from Ethiopian Private Commercial Banks)

Abstract

Dividend policy is among the widely addressed topics in modern economics and finance literatures. The inconclusiveness of dividend theories and empirical studies on the determinants of corporate dividend payout decisions has made it one of the most debatable topics for researchers. As is the case, this study aimed to empirically investigate the factors that determine the dividend payout decisions in the case of Ethiopian private commercial banks. Panel data covering ten years period 2005 to 2014 were analyzed within the framework of fixed effect technique. The results showed that profitability, liquidity and leverage were the most statistically significant factors which positively influence dividend payout decisions of banks in Ethiopia. On the other hand, growth and size influenced bank dividend payout negatively and significantly. Lagged dividend payment and capital had no influence in determining the level of dividend payment in banks. This study confirms some of the previous studies and provides strong support to the signaling, agency cost and pecking order dividend theories and partly consistent with the free cash flow hypothesis though, no support was found for the transaction cost theory. Bank Managers and board of directors should give due attention to the major bank dividend payout determinants. Investors who want to select the dividend paying banks might have to look in to the major determinant factors before selecting the private banks. Finally, private banks to give special emphasis for agency costs and firm are reputation.