Determinants of Dividend Policy of Banks in Ghana

Abstract

This paper seeks to find the determinants of dividend policy of banks in Ghana. Panel data covering the five-year period 1999 – 2003 were analyzed within the framework of fixed and random effects technique. The results show that profitability, debt, changes in dividend and collateral capacity are the statistically significant factors which positively influence dividend policy of banks in Ghana. On the other hand, we found that growth and age influenced bank dividend policy negatively and significantly. Although, surprisingly, cash had a negative relationship with dividend policy, the results were not significant. Consequently, the major determinants of dividend policy of banks are profitability, leverage, changes in dividend, collateral capacity, growth and age. In all, the study found support for the profitability theory and agency cost theory and partial support for life cycle theory even though no support was found for the free cash flow theory.