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Analysis of the Relationship between Profitability and Dividend Policy of Banks on the Ghana Stock Exchange

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  • John Kwaku Mensah Mawutor
  • Embele Kemebradikemor

Abstract

The relationship between dividends and earnings has long been a controversy to analyst and investors. In view of this phenomenon, dividend policy still remains an unresolved issue in contemporary corporate governance. This quantitative study, investigates the relationship between profitability and dividend policy of banks listed on the Ghana Stock Exchange (GSE). Using a correlation analysis to test the relationship between profitability and dividend policy, the (expected) result is that profitability and dividend policy are significantly related. Thus, when the banks make profits they tend to pay out dividends. However, the study also shows through a regression model that banks listed on the Ghana stock exchange employ a dividend policy that is not solely influenced by profitability. There are also other factors, which account for the dividend policy that banks adopt. These other factors include liquidity, growth, other investments, control, legal requirements, shareholders desires, size of the firm and other management decisions

Suggested Citation

  • John Kwaku Mensah Mawutor & Embele Kemebradikemor, 2015. "Analysis of the Relationship between Profitability and Dividend Policy of Banks on the Ghana Stock Exchange," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(7), pages 407-417.
    • Handle: RePEc:rss:jnljef:v4i7p2
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    References listed on IDEAS

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    1. Mohammed Amidu & Joshua Abor, 2006. "Determinants of dividend payout ratios in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 7(2), pages 136-145, March.
    2. H. Baker & Gary Powell & E. Veit, 2002. "Revisiting managerial perspectives on dividend policy," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(3), pages 267-283, September.
    3. Raza, Syed Ali & Farooq, M. Shoaib & Khan, Nadeem, 2011. "Firm and industry effects on firm profitability: an empirical analysis of KSE," MPRA Paper 36797, University Library of Munich, Germany.
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