1how Does Dividend Policy Affect Performance Of The Firm On Ghana Stock Exchange

Topics: Dividend yield, Dividend, Stock market Pages: 10 (5744 words) Published: August 28, 2015
Investment Management and Financial Innovations, Volume 4, Issue 2, 2007


Mohammed Amidu*
The study examines whether dividend policy influences firm performance in Ghana. The analyses are performed using data derived from the financial statements of listed firms on the GSE during the most recent eight-year period. Ordinary Least Squares model is used to estimate the regression equation. In order to operationalise ‘dividend policy’; the study coded: ‘1’ to represent the company has a policy to pay dividend; while ‘0’ to represent the company has a policy not to pay dividends. The results show positive relationships between return on assets, dividend policy, and growth in sales. Surprisingly, study reveals that bigger firms on the GSE perform less with respect to return on assets. The results also reveal negative associations between return on assets and dividend payout ratio, and leverage. The results of the study generally support previous empirical studies. The main value of this study is the identification of how dividend policy affects performance of firms listed on the Ghana Stock exchange.

Key words: Dividend policy, Price, firms, Listed Ghana.
JEL Classification: G35; L25.

1. Introduction
The subject matter of dividend policy remains one of the most controversial issues in corporate finance. For more than half a century, financial economists have engaged in modeling and examining corporate dividend policy. Black (1976) hinted that, “The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that don’t fit together”. In over thirty years since then a vast amount of literature has been produced examining dividend policy. Recently, however, Frankfurter et al. (2002) concluded in the same vein as Black and Scholes (1974) that: The dividend “puzzle”, both as a share value-enhancing feature and as a matter of policy, is one of the most challenging topics of modern financial economics. Forty years of research have not been able to resolve it. Research into dividend policy has shown not only that a general theory of dividend policy remains elusive, but also that corporate dividend practice varies over time, among firms and across countries.

The patterns of corporate dividend policies not only vary over time but also across countries, especially between developed, developing and emerging capital markets. Glen et al. (1995) found that dividend policies in emerging markets differed from those in developed markets. They reported that dividend payout ratios in developing countries were only about two thirds of that of developed countries. Ramcharran (2001) also observed low dividend yields for emerging markets. There has been emerging consensus that there is no single explanation of dividends. According to Brook et al. (1998) there is no reason to believe that corporate dividend policy is driven by a single goal. In addition, not much research has been done on the impact of dividend policy on share prices in emerging equity markets. In view of these, the present research would try to resolve the problems faced by the listed companies in Ghana by analyzing the dividend payments of all the companies listed on Ghana Stock Exchange (GSE) and evaluate its effect on their share price.

2. Research Gap and Problem Statement
Management are in a dilemma about whether to pay a large, small or zero percentage of their earnings as dividends or to retain them for future investments. This has come about as a result of the need for management to satisfy the various needs of shareholders. For instance, shareholders *

© Mohammed Amidu, 2007.

University of Ghana Business School, Ghana.


Investment Management and Financial Innovations, Volume 4, Issue 2, 2007

who need money now for profitable investment opportunities would like to receive high dividends now. On the other hand, shareholders...
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