THE IMPACT OF DIVIDEND POLICY ON

COMMERCIAL BANKS PERFORMANCE IN

GHANA
Mphil Thesis
By:
Theresa Asiedu

16th October,2016

Outline of Presentation
1.
2.
3.
4.
5.
6.
7.
8.
9.

Introduction
Statement of Problem
Objective of the Research
Research Questions
Review of Literature
Methodology
Findings
Conclusion
Recommendation

Introduction

Universally, dividend policy has been viewed as a significant determinant of

firm performance in both developed and developing countries. Ghana, a
growing economy cannot isolate herself from this issue.

The subject matter of dividend policy has assumed centre stage in the
business environment for quite some time now. According to Nissim and Ziv
(2001), dividend policy constitute rules, standards, regulations and policies
that direct companies to make decisions regarding whether to pay dividends
and how much to shareholders
Dividends simply constitute the return that flow to shareholders for the risk
they assume and investment made in a company

Shareholder wealth maximization is usually regarded as the over ridding

objective of every business organisation which mostly reflect the value of the
firm. In order to accomplish this objective, management is required to make
equitable payment to shareholders for the risk they take on by making their
investments.

Statement of Problem
Despite attempt to resolve the issue surrounding payment of dividend, the
explanation for dividend behaviour of firms is inconclusive.
This said, should firms continuous to pay dividend or should they retain the
dividend to grow the firm?
Irrespective of the numerous scholarly works on dividends, the entire business
world is still suffering from what Black (1976) described as dividend puzzle.
A closer look at the literature shows that while research interest on dividend is
well researched in developed economies, few studies exist on developing
economies.
In Ghana, studies on dividend policy and bank performance is rare. The nature
and extent of its relationship as well as its implications for financial industry
remain unclear.
Closest empirical works on Ghana are Amidu and Abor(2006), Amidu
(2007) and Asamoah(2010)
The current study therefore seeks to examines dividend policy and commercial
banks performance in Ghana.

Objectives of the Study

General
To investigate how dividend policy of commercial
banks influence their performance.
Specific
1. To examine whether there is any significant impact of
dividend policy on the performance of commercial banks.
2. To identify other factors that influence the performance of
the commercial

Research Questions
1. Does dividend policy have impact on the
performance of commercial banks?
2. What are the other factors that influence the
performance of commercial bank?

Review of Literature
Theoretical Frameworks
Agency cost theory: The theory acknowledges that firm managers may
undertake operations which may be contradict the primary interest or focus of
the shareholders.
Signalling theory: This theory focuses on the use of dividend policy as an
informative tool in communicating the firms performance to the investment
community.
Bird in hand theory: this theory emphasises on the fact that investor
preferences could be achieved through high dividends.
Dividend Irrelevance Theory: Here, investors are assumed to be unmoved
by dividend announcement or capital gain issues as these investors can decide
to reinvest the accrued dividends in buying more stocks from the firm.

Methodology
Estimation technique
Panel data regression analysis

Model specification
ROEit=0+1DPSit+2BSIZEit+3CARit+4Debtit+5INFit+ it ...1

ROE= return on equity, DPS=dividend per share, BSIZE=bank size, CAR=capital

adequacy, t=time, =error term, o= intercept , 1-5= coeficients, and i=cross
sectional dimension

Data type and sources

Secondary data(financial statements 2007-2015)

Sample and sampling

Sample frame- Commercial banks in Ghana
Sampling18 commercial banks selected in Ghana

Results

Results Contd

Findings
The overall findings of the study show that dividend policy of
the commercial banks has significant impact on their financial
performance
The result buttresses the signaling hypothesis denoting that
for management to bridge the gap between them and investors,
management must employ dividend policy to convey private
information which is only available to them to their
shareholders and may only raise dividends when management
believe that earnings would be permanently increased.
The results show that factors including inflation, debt and
bank size have significant impact on the financial performance
of the commercial banks in Ghana.

Recommendations
Management of commercial banks should endeavor to put in
more robust dividend policy that would enhance their
performance.
Bank regulators should put up a policy that will require the
commercial banks to communicate their dividend information on
their corporate website in their annual report.
Commercial banks should have a strategic distributional policy
on dividend to encourage investment from investor communities
as most investors depends on firm dividend communication to
invest.
Management of commercial banks should include in their
decision making process the dynamics of inflation in order to
make an informed investment decisions.

conclusion
The overall findings of the study shows that
dividend policy of the commercial banks has
significant impact on their financial
performance.
Similarly, the results show that factors
including inflation, debt and bank size have
significant impact on the financial
performance of commercial banks in Ghana.

Thank You