Internal Factors Influencing Dividend Payout of Ethiopian Insurance Companies
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Date
2016-01
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Addis Ababa University
Abstract
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
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Keywords
Dividend policy, Dividend payout, Insurance companies