DETERMINANT OF CORPORATE DIVIDEND PAYOUT DECISION A STUDY ON INSURANCE COMPANIES IN ETHIOPIA.

Abstract

Dividend policy decision is essential and has a great influence on financial structure, flows of funds and corporate liquidity. Even if several studies have been done by different researchers it still remains unsolved. This research work tried to explore the determinants of corporate dividend payout in Ethiopian insurance companies on basis of data covers ten years (2012-2021) period. Key explanatory variables were identified and these variables are profitability, firm size, growth opportunity, leverage, liquidity, GDP and inflation. In order to achieve objective of the research quantitative research method and explanatory research approach and 10 years panel data from annual audited report of nine private insurance companies were employed. Fixed Random effect model used to identify the most significant variable because of hausman test result indicate the p-value was appropriate to use fixed random. The result of the study shows that profitability, growth opportunity, leverage, inflation and GDP have found to have statistically significant relation with the dividend payout. While the remaining variables found to have statistically significantbut rejected relation with the dividend payout in Ethiopian insurance industry. When designing dividend payout policy mangers of Ethiopian insurance companies need to consider the major factors in setting/revising their dividend payout policy as profitability creates more cash inflow potential, to be competent in the arena the company’s growth opportunity needs to be considered, as dividend is the only means of return from investment and government should provide an option for shareholders in the absence of secondary stock market. On the same token investor need to consider the significant factors profitability, leverage, growth opportunity, GDP and inflation in their investment decisions on Ethiopian insurance companies