Determinants of Dividend Policy of Insurance Companies in Ethiopia
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Date
2012-06
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Addis Ababa University
Abstract
This study seeks to find the determinants of dividend policy of insurance companies in
Ethiopia. In order to achieve this objective, the study uses mixed research approach.
Panel data covering nine-year period from 2003 – 2011 are analyzed for nine insurance
companies. Also in-depth interview is conducted with company officials. The study
analyses a range of determinants of dividend policy: Profitability, growth, Liquidity, Size
and Leverage of the firm. The random effects technique has been applied to find out the
most significant variables used by the insurance companies in making the dividend
decisions. The results show that dividend decisions are relevant and profitability and
liquidity are the statistically significant factors which positively influence dividend policy
of insurance companies in Ethiopia. On the other hand, growth influences dividend
policy negatively and significantly. Contrary to theoretical prediction, the study finds that
size and leverage are insignificant in influencing the dividend policy of insurance
companies in Ethiopia. The study provides evidence that profitability, liquidity and
growth are the most important factors that affect dividend policy of insurance companies
in Ethiopia. So, Ethiopian insurance companies’ managers should give consideration to
profitability, liquidity and growth when they set dividend policy
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Keywords
Insurance, Companies in ethiopia