Determinants Of Dividend Payout Policy Of Insurance Companies In Ethiopia

Abstract

The general objective of this study was to examine the determinants of dividend payout policy of insurance companies in Ethiopia. The study used secondary source of data which were collected from audited annual financial report of each selected insurance companies and NBE during the period of 2016 - 2022. The study analyzed both internal and macroeconomic variables; firm size, growth, leverage, liquidity, profitability and firm age from internal factors and GDP and inflation from macroeconomic variables. The fixed effect model was used to identify the impact of each explanatory variable on the dividend payout policy of Ethiopian insurance companies. The collected data were analyzed using STATA version 14. Descriptive, correlation, and regression analyses were performed to analyze the data. The results of the regression analysis revealed that growth, leverage, liquidity had an inverse relationship with dividend payout ratio, while profitability, inflation and GDP had a direct relationship with dividend payout ratio. Firm size and firm age were insignificant. The adjusted R-squared value was 0.5217, indicating that the model explained 52.17% of the variation in dividend payout ratio. The result of fixed effect regression model showed that, growth, leverage, liquidity and profitability from internal factors and GDP and inflation were found significant factors in dividend payout policy. However, firm size and firm age were insignificant. Thus, profitability, GDP and inflation have a positive and significant effect on dividend payout as predicted. Therefore, Ethiopian insurance company managers should prioritize growth, leverage, liquidity, profitability, inflation and GDP when making dividend payout decisions.