Dividend Payout, Retention Policy and Financial Performance in Commercial Banks: Any Causal Relationship?

Dividend Payout, Retention Policy and Financial Performance in Commercial Banks: Any Causal... AbstractDividend policy remains one of the top ten unresolved issues in corporate finance including in the banking sector. Hence, this study explores data from 250 commercial banks in 30 Sub-Saharan African countries to establish the causal relationship between the use of two major dividend policies in the sector and financial performance for the period 2006 to 2015. The empirical results of the vector error correction block exogeneity Wald test and Pairwise Granger causality test reveal that only retention policies Granger cause performance (ROA), even though both major policies posit a positive relationship with performance (ROA) in the Vector Error Correction Model estimate. Therefore, commercial banks in Sub Saharan Africa and also in the entire world should use their free cash flows wisely by exploring all available viable investment opportunities. By doing this, not only owners’ profit but wealth is fully maximised such that their survival, value creation, and future growth is fully justified. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studia Universitatis Babe-Bolyai Oeconomica de Gruyter

Dividend Payout, Retention Policy and Financial Performance in Commercial Banks: Any Causal Relationship?

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Publisher
de Gruyter
Copyright
© 2018 Odunayo Magret Olarewaju et al., published by Sciendo
ISSN
2065-9644
eISSN
2065-9644
D.O.I.
10.2478/subboec-2018-0003
Publisher site
See Article on Publisher Site

Abstract

AbstractDividend policy remains one of the top ten unresolved issues in corporate finance including in the banking sector. Hence, this study explores data from 250 commercial banks in 30 Sub-Saharan African countries to establish the causal relationship between the use of two major dividend policies in the sector and financial performance for the period 2006 to 2015. The empirical results of the vector error correction block exogeneity Wald test and Pairwise Granger causality test reveal that only retention policies Granger cause performance (ROA), even though both major policies posit a positive relationship with performance (ROA) in the Vector Error Correction Model estimate. Therefore, commercial banks in Sub Saharan Africa and also in the entire world should use their free cash flows wisely by exploring all available viable investment opportunities. By doing this, not only owners’ profit but wealth is fully maximised such that their survival, value creation, and future growth is fully justified.

Journal

Studia Universitatis Babe-Bolyai Oeconomicade Gruyter

Published: Apr 1, 2018

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