Abstract:
Profitability has always been considered as a primary indicator of dividend payout
ratio. There are numerous factors other than profitability that affect
dividend decisions of an organization, namely, earning per share, current ratio,
debt to equity ratio and price to book ratio. Available literature suggests that
dividend payout ratio is positively related to profits, cash flows and it has
inverse relationship with debt to equity, retention ratio and price to book ratio.
This dissertation aims at investigating the factors which determine the dividend
decision among the firms that are officially listed on the Ghana Stock Exchange.
Factors such as the current ratio, price-to-book value, earnings per share, retention
ratio, debt to equity ratio and market capitalization rate per sector were
considered. Using a sample of 20 listed companies on the GSE, the cross sectional
analysis revealed that current earnings, retained earnings and liquidity are among
the most significant determinants of dividend payout. Market capitalization rate
per sector and price- to-book value turn out to be statistically insignificant while
debt to equity ratio turns out to be negatively related to dividend pay-out ratio. As
previous research has shown, it is very difficult to find model that you can apply
to all companies, since all companies are different from each other. However, the
author has been able to identify some key factors that derive dividend payouts.
Amongst these factors, earning per share, current ratio and debt to equity ratio are
important factors that determined the dividend payout ratio.
