Determinants of Dividend Payout Policy of Commercial Banks: Evidence from Selected Commercial Banks in Ethiopia

Abstract

The study is about investigation of determinants of dividend payout ratio of commercial banks in Ethiopia over the period 2010-2018. Nine years Panel data was obtained from audited financial statements of 8 selected commercial banks in Ethiopia. The study used six independent variables such as financial leverage, profitability, age of firm, corporate tax rate, operating cash and extent of shares distributed and one dependent variable which is dividend payout ratio. Both descriptive and inferential statistics were used in order to interpret the findings of the study. Random effect regression was used to investigate the impact of determinant factors on the dividend payout policy of commercial banks in Ethiopia. Correlation was also conduct to understand the relationship between dependent and independent variables. The correlation analysis shows that, Return on Equity (ROE), Corporate Tax Rate (CTR), and Number of Shares Distributed (NSD) have Negative relationships with Dividend Payout Ratio (DPO). While the remaining independent variables; Debt Ratio (DR), Age of Firm and Cash to Total Assets Ratio (CTA) have positive relationships with Dividend Payout Ratio (DPO). The key finding of this study shows that, financial leverage is significant variable at 1%, while corporate tax rate, cash balance and extent of shares distributed are significant variables at 10% significant level in determining dividend payout ratio of commercial banks in Ethiopia. on the other hand, profitability and age of firm are not statistically significant variables in determining dividend payout ratio in commercial banks of Ethiopia.