Factors Affecting Dividend Payout Ratio of Private Commercial Banks in Ethiopia

Abstract

This study investigated the factors determining dividend pay-out policy of Ethiopian private commercial banks. The study used 10 years secondary data from 12 purposively selected private commercial banks. Dividend pay-out ratio was used as dependent variable and profitability, liquidity, leverage, firm growth, firm size, lagged dividend pay-out, inflation and GDP growth were used as independent variables. Randum effect panel regression technique was used. The regression result revealed that profitability, liquidity, leverage, lagged dividend pay-out and firm size have positive significant effect on dividend pay-out ratio. whereas, firm growth, inflation and GDP were found to be statistically insignificant and have no any impact on dividend policy of Ethiopian private banks. Based on the results found it is recommended that investor who prefers current high dividend should invest on profitable company, while management should announce the dividend after considering their profit, investor should invest on larger company to earn higher dividend.