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Dividend Payment
Dividend Payment
Dividend policy a critical policy to every business entity, hence the need to focus attention on
it. This policy is said to serve as a regulatory framework determining whether pay-outs are to
be effected or not. This paper hence gives a critically review of contending theories on
dividend policies (assessing the models realistic status); it also projects the main factors
determining dividend pay-out in Ghana; and as well gives an empirical analysis of the
impact of dividend policy on shareholder wealth of 10 listed organisation on the Ghana stock
exchange .
distribute cash to investors. For many years now, several theories have being propounded on
this there “dividend policy”. Most competing of these theories are the Miller and Modigliani
(M&M) dividend irrelevant model; the Bird-in-the hand theory and the tax-Preference
Theory
Miller and Modigliani (MM) reasoned with the assumption that there is a perfect world with
no taxes; no transaction costs; but there exist symmetric information for all investors;
Conflict between shareholders and managers does not exist; all investors are price takers; and
investors have no power to control security prices. Reasoning from this, this theory means
that in the perfect capital market a firm’s dividend policy has no impact. This theory contends
that dividend policy of corporate organisations bear absolutely no effect on either its stock
price or its value. Much more investors value capital gains and dividends equally. This is to
say that even when a firm does not pay dividends or pays little dividends, it Ha nor effect on
reason that the assumptions of this model are unrealistic since in the reals world corporate
income as well as personal income taxes exist. Much more there are exist transaction costs,
Bird-in- hand
This model basically has its foundation from the reasoning that ' what is available now is
preferable to what may be generated the future'. From the view of Lintner and Gordon
(1959), investors are risk averse and shall choose to receive dividend pay-out now than any
projected capital gain. In this respect, dividend payments are relevant and conducive
influence market value. From the views of these researchers, current dividends displaces
investors’ uncertainty but anticipated gains increases investors uncertainty. This theory is real
as it is applicable to the current world. In this regard, investors prefer holding dividend cash
now rather than being promised dividend in the future. Hence dividend policy is vital and
Tax-Preference Theory
Howatt et al., (2009) hold the view that investors are scared with higher taxes on dividend.
This is because it produces low or no dividend pay-outs. Hence makes investor induces
investors to choose prefer capital gains and thus reduce their taxable income.
For instance in Kenya dividends are taxed 5% while capital gains are tax exempt. With this
real world situation investors shall prefer capital gains than dividend since there would be not
tax of capital gains. This theory is therefore realistic. In that because of the high tax burden
Assessing theories on dividend policies such as Miller and Modigliani (M&M) dividend
irrelevant model (1965), Bird-in- hand, and Tax-Preference Theory, it is observed that the
theory of dividend irrelevance is not real and cannot be applied in this world. However, the
According to the existing empirical literature, what are the main determinants of
dividend payment in Ghana? Support your analysis with references from current
literature.
Dividend is generally considered as the returns on one’s investment (Lee, 2009) after
investing in a company. Firms however, consider several factors before paying out dividend .
among some Ghanaian firms it is noticed that they consider factors such as The State of
The State of Economy: it is observed that in the Ghanaian setting when the general economy
is booming many firms are poised to pay dividend or even increase their dividend pay-out.
However, in stifled economic conditions especially during the power outage era (2012-2015),
many firms devoid of paying dividend or even increasing their dividend payout. According to
management of firms normally retain all earnings so as to secure liquidity position and have
the ability to absorb future shocks. However, in economic prosperity, management often
Taxation Policy: It is also observed that taxation have due influence on dividend payment in
Ghana. In that high tax obligation on firms cause management of firms to reduce their
dividend pay-out which less tax obligation gives back cash to the firms hence enabling them
to pay better dividend amount. As per Naceur, et al. (2006), taxation policy is a factor that
impacts corporate dividend policy. That is, high corporate taxation decreases earnings and
Desire of the Shareholders: It is also observed that in the country, when there is upsurge in
considerably have effect on the management of firms to pay dividend. To Naceur, et al.
(2006), many investors make investment so as to gain some sought of regular flow of returns.
Hence make conscious desire for regular dividends so as to reduce any sort of insecurity
Liquidity position: In the Ghanaian setting, a cash highly liquid corporation have a high
tendency of dishing out dividend whereas those with liquidity challenge find themselves
challenged in paying dividends their investors. Naceur, et al. (2006), asserts that declaring
retained earnings does not necessarily and sufficient mean there is available cash. To these
scholars’ available cash is a key factors influencing dividend policy of a firm. In this regard,
the liquidity of a firm strictly impacts the manner of financing, investment as well as financial
decision of a firm.
Conclusion
According to existing literature, it was observed that the main determinants of dividend
payment in Ghana include The State of Economy, Taxation Policy, Desire of the
years’ worth of share performance and dividend data (dividend payout and dividend
yield) for 10 listed companies in Ghana which declared dividends regularly for 2014 to
2018. By analyzing your data, discuss whether dividend policy does have an impact on
The part of the report make empirical attempt to determine whether dividend policy has
impact on shareholder wealth in Ghana. Consideration is made with respect to some carefully
selected listed companies on the Ghana Stock Exchange. Listed companies used in this
respect include Cal Bank, Standard Chartered Bank (SCB), Camelot, Anglo Gold Ashanti
(AGA), Societe Generale Ghana (SoGB), Benso oil Palm Plantation (BOPP), Ecobank
According to Kouki and Guizani (2009), shareholder wealth can be valued at the current
market price of the stock. In this respect, this study uses the market price of stock of listed
firms to represent the shareholder value of firms in the market. Below is a table showing the
Listed
37 37 37 37 37
6 AGA
Mean market price per share was ¢5.995 for year 2014, ¢5.905 for year 2015, ¢5.373 for
year 2016, ¢6.413 for year 2017 and ¢6.541 for year 2018.
Below is a table showing the Dividend per share of listed firms under consideration.
year 2016, ¢0.1377 for year 2017 and ¢0.1889 for year 2018.
Dividend yield is found by spreading dividend per share on stock price per share for each
period considered respectively. Below is a table showing the Dividend yield of listed firms
under consideration.
Dividend yield
Mean Dividend yield was ¢0.0641 for year 2014, ¢0.3814 for year 2015, ¢0.2396 for year
2016, ¢0.0524 for year 2017 and ¢0.0506 for year 2018.
In determining the impact of dividend policy on shareholder wealth, it is drawn that
shareholder wealth is the dependent variable and dividend policy (which is made of dividend
Fv = a0 +b1Dp +b2Dy+ e
Where
a = Intercept
Coefficient Table
- -
dividend per - -
- -
dividend yield -3.63028 4.240136 -0.85617 0.482109 21.8741 14.61355 21.8741 14.61355
Information from this model is that, firm value have negative link to dividend yield. This
implies that the higher the value of dividend yield for the stock held by an investor the lower
the firm value. This relation is however not significant given a probability value of 0.48. a
study by Lashgari and ahmadi (2014) on stock exchange of Tehran also found a negative
association between share per price share and dividend payout ratio. On the other hand,
dividend per share was found to have had a positive link to firm value. In that a high dividend
per share could result in an increase in the firm value of the company. This was however
insignificant given a probability value of 0.712. A study by Kenyoru et al. ((2013) in Kenya
showed a positive link between shareholder wealth and dividend per share.
Conclusion
Deduction drawn from the above presentation is that, there is a direct and positive relation
between dividend per share and firm value. However, there is also a direct and negative effect
of dividend yield on firm value. From this is can be said that whereas dividend per share have
value. Hence dividend policy have impact on shareholder value bit this depends on the type
Abdul R. R., Yaacob, M. H., Alias, N. and Mat nor, F. (2010), Investment,
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Kenyoru, N. D., Kundu, S. A., & Kibiwott, L. P. (2013). Dividend policy and share price
Kouki M. and Guizani, M. (2009). “Ownership Structure and Dividend Policy Evidence from
the Tunisian Stock Market”, European Journal of Scientific Research, 25(1), pp.42-53
Lashgari, Z., & Ahmadi, M. (2014). The Impact of Dividend Policy on Stock Price Volatility
in the Tehran Stock Exchange. Kuwait Chapter of the Arabian Journal of Business
Lee, G. (2009). How corporate governance affects payout policy under agency
Naceur, B. S., Goaied, M. and Belanes, A. (2006). “On the Determinants and Dynamics of
Dividend Policy”, International Review of Finance, 6(1 –2), 2006: pp. 1 –23
Naser, K., Nuseibeh, R. and Rashed, W. (2013) “Managers' Perception of Dividend Policy: