Determinants Of Dividend Pay Out: The Case Of Selected Private Commercial Banks Of Ethiopia

Abstract

The study was aimed to investigate the determinants of dividend pay-out in selected private commercial banks in Ethiopia. The analysis was focused on one dependent variable, and Nine independent variables. The study used an explanatory research design, which was appropriate for establishing causal relationships between the dependent variable and independent variables . A mixed research approach, incorporating both qualitative and quantitative methods, was employed. The primary data was gathered from bank managers via questionnaires and secondary data sources were collected from National Bank of Ethiopia (NBE) financial tatement reports and the Ministry of Finance and Economic Development (MOFED). The statistical analysis was performed by Stata software and the result of the study revealed that the model was statistically significant with p-value of 0.0000. The model’s adjusted R-squared value of 0.5228 indicated that approximately 52.28% of the variability in the dividend pay-out ratio could be explained by the model, leaving 47.72% unexplained, potentially due to omitted variables or inherent randomness. The study focused on financial strategies for private commercial banks in Ethiopia, focusing on the importance of balancing profitability, dividend policies, capital adequacy, liquidity, and economic adaptability. Banks are advised to optimize dividend payouts by balancing reinvestment and dividends, with high-growth banks prioritizing reinvestment and larger banks leveraging their size to pay higher dividends. Maintaining strong capital adequacy and liquidity is crucial for stability and investor confidence. Additionally, banks should monitor economic conditions, including inflation trends, to adjust their strategies accordingly. Consistency in dividend practices and strategic use of free cash flow for both dividends and growth investments are essential for long-term success