Determinants of Dividend Payout Ratios in Ghana

This study seeks to examine the determinants of dividend payout ratios of listed

companies in Ghana.

The analyses are performed using data derived from the

financial statements of firms listed on the Ghana Stock Exchange during a six-year period. Ordinary

Least Squares model is used to estimate the regression equation. Institutional holding is used as a

proxy for agency cost. Growth in sales and market-to-book value are also used as proxies for

investment opportunities.

The results show positive relationships between dividend payout ratios and profitability,

cash flow, and tax. The results also show negative associations between dividend payout and risk,

institutional holding, growth and market-to-book value. However, the significant variables in the

results are profitability, cash flow, sale growth and market-to-book value.

Introduction

Successful companies earn income. This income can be invested in operating assets,

used to acquire securities, used to retire debt, or distributed to shareholders. The

income distributed to shareholders is the dividend. Issues that arise if a company

decides to distribute its income to shareholders include the proportion to which such

income would be distributed to shareholders; whether the distribution should be as

cash dividends, or the cash be passed on to shareholders by buying back some shares;

and how stable the distribution should be. Much controversy surrounds dividends

policy. Black (1976) observed that "the harder we look at the dividends picture, the

more it seems like a puzzle, with pieces that just do not fit together". Since then, the

amount of theoretical and empirical research on dividend policy has increased

dramatically (Baker, 1999).

Many reasons exist why companies should pay or not to pay dividends. Yet

figuring out why companies pay dividends