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

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