“DIVIDEND POLICY AND SHARE PRICE” (THE CASE OF PRIVATE BANKS IN ETHIOPIA)

Abstract

This paper aimed at investigating the relationship between dividend and share price. By observing sixteen private banks in Ethiopia, an attempt was made to find a connection between dividends and stock prices. The data was collected for six-year period (2015-2020 G.C.) and used descriptive statistics, correlation and regression technique to examine the hypothetical relationship between dividends and share prices. Interview wis bank share office officials was also made to get additional information. The results show there is a strong association between the crude measures of dividends and share prices. Earnings per Share are also strongly correlated with share prices. The Pearson’s moment correlation coefficients are statistically significant at 99% confidence level. However, evidence did not support the association between the real measures of dividends and share prices. Also, the actual share prices are a bit higher than model determined share prices for all the sixteen banks. With much decision regarding the dividends and share premiums left to the general meetings of shareholders’, it is nearly clear dividends determines the share prices of Ethiopian private banks.