Abstract:
The study investigated the effect of Capital structure on dividend
payout of banks in Ghana. The main objective of the study was to measure the
directional relationship between three capital structure variables. The Capital
structure variables used were short-term financial leverages, total financial
leverage, equity risk exposure and dividend pay-out was measured using the
dividend payout ratio. The study design was casual and panel data. Annual
data for all the capital structure variables and dividend payout ratio were
collected from 2002-2012 and the panel ordinary least square estimator was
used to establish the relationship between capital structure and dividend
payout. The results revealed that among the three capital structure variables
used in the study, the short term financial leverage have a positive effect on
dividend pay-out, the total financial leverage has a negative effect on dividend
pay-out and the equity risk exposure had a negative effect on dividend pay-out
too. Among the control variables used, age of the bank had a positive effect on
dividend payout; profitability had a positive effect on dividend payout, bank
size had a positive effect on dividend payout but bank growth has a negative
effect on dividend payout. It is therefore conclude that banks in Ghana rely
heavily on short term financial leverage to finance their operations and
dividend hence it is recommended that the bank of Ghana should reduce the
lending rate to the banks to reduce the current over reliance on short term
debts.
