Internal Factors Influencing Dividend Payout of Ethiopian Insurance Companies

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Addis Ababa University


Dividend policy decision has a great influence on financial structure, flows of funds and corporate liquidity. However it’s yet unresolved puzzle. This paper is an effort to reveal the insight dynamics that determine dividend payout with reference to Ethiopian insurance companies on basis of data covers eight years (2007-2014) period. In light of prior literature, key explanatory variables were identified to disclose their relationship and influence on dividend payout. These variables are profitability, liquidity, leverage, firm’s size, growth opportunity, lagged dividend payout ratio and business risk. The assumptions needed to be fulfilled for OLS were tested; the residual was found homoscedastic, free of multicollinearity, free of autocorrelation and normally distributed. Result using random effect panel least square regression exhibited that profitability, liquidity, growth opportunity and lagged dividend payout ratio has a significant relationship with dividend payout ratio. Also the study found that leverage, firm size and business risk were found to be insignificant in dividend payout decision of Ethiopian insurance companies. while designing their dividend payout policy board of directors and managers of insurance companies need to consider the company’s profitability as it creates more cash inflow potential, company’s liquidity position as inefficiency on it leads to decrease in profitability, the company’s growth opportunity so as to be competent in the arena and the company’s past year dividend payment as dividend is the only means of return from investment and liquidity option for shareholders in the absence of secondary stock market. On the same token investors need to consider profitability, liquidity, growth opportunity and previous year dividend in their investment decisions on Ethiopian insurance companies and to set their expectations. Key Words: dividend policy; dividend payout; insurance companies



Dividend policy, Dividend payout, Insurance companies