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.
