FACTORS AFFECTING DIVIDEND PAYOUT POLICY: IN CASE OF ETHIOPIAN INSURANCE COMPANIES

Abstract

Dividend policy decision is essential and has a great influence on financial structure, flows of funds and corporate liquidity. Even if several studies have been done by different researchers it still remains unsolved. This research work tried to explore the determinants of corporate dividend payout in Ethiopian insurance companies on basis of data covers eleven years (2007-2017) period. Key explanatory variables were identified and these variables are asset structure, firm size, growth in revenue, leverage, liquidity, profitability, previous year dividend, GDP and inflation. Random effect model is used to identify the most significant variable. The result of the study shows that growth opportunity, liquidity, profitability, previous year dividend and inflation have found to have statistically significant relation with the dividend payout. While the remaining variables found to have statistically insignificant relation with the dividend payout in Ethiopian insurance industry. When designing dividend payout policy mangers of Ethiopian insurance companies need to consider the major factors in setting/revising their dividend payout policy as profitability creates more cash inflow potential, to be competent in the arena the company’s growth opportunity needs to be considered, as dividend is the only means of return from investment past year dividend payment should be also be considered and liquidity option for shareholders in the absence of secondary stock market. On the same token investors need to consider the significant factors profitability, liquidity, growth opportunity, previous year dividend and inflation in their investment decisions on Ethiopian insurance companies.