Capital structure and dividend payout of banks in Ghana

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.