Determinant of Dividend Policy in the Insurance Industry: A Case Study of Insurance Companies in Ethiopia

Abstract

The dividend policy is one of the major decisions in corporate finance. The primary goal of the study was to examine the major determinant factors that affect insurance firms' dividend policies in Ethiopia. The study used an explanatory research design and a quantitative research approach was used to accomplish this goal. The insurance firms' panel data for the five years from 2017 to 2021 were analyzed. The study examined several factors that affect dividend policies, including growth, inflation, profitability, liquidity, business size, and firm leverage. The most important factors considered by insurance firms for determining dividends were identified using the random effects technique. The findings indicate that profitability and liquidity have a beneficial impact on the dividend policies of Ethiopian insurance companies. On the other side, dividend ratio is adversely and severely impacted by growth and business size. The study gives proof that the most significant variables influencing the dividend policy of insurance companies in Ethiopia are inflation, profitability, liquidity, and growth. Therefore, when deciding on a dividend policy, the managers and board of directors of Ethiopian insurance companies should take the firm's size, profitability, liquidity, and growth into account