Introduction

Dividend policy a critical policy to every business entity, hence the need to focus attention on

it. This policy is said to serve as a regulatory framework determining whether pay-outs are to

be effected or not. This paper hence gives a critically review of contending theories on

dividend policies (assessing the models realistic status); it also projects the main factors

determining dividend pay-out in Ghana; and as well gives an empirical analysis of the

impact of dividend policy on shareholder wealth of 10 listed organisation on the Ghana stock

exchange .

Theories of dividend policies and their realistic status

Dividend policy concerns document decisions of management guiding them on how to

distribute cash to investors. For many years now, several theories have being propounded on

this there “dividend policy”. Most competing of these theories are the Miller and Modigliani

(M&M) dividend irrelevant model; the Bird-in-the hand theory and the tax-Preference

Theory

Miller and Modigliani (M&M) dividend irrelevant model (1965)

Miller and Modigliani (MM) reasoned with the assumption that there is a perfect world with

no taxes; no transaction costs; but there exist symmetric information for all investors;

Conflict between shareholders and managers does not exist; all investors are price takers; and

investors have no power to control security prices. Reasoning from this, this theory means

that in the perfect capital market a firm’s dividend policy has no impact. This theory contends

that dividend policy of corporate organisations bear absolutely no effect on either its stock

price or its value. Much more investors value capital gains and dividends equally. This is to

say that even when a firm does not pay dividends or pays little dividends, it Ha nor effect on

the value of stock of the firm .

reason that the assumptions of this model are unrealistic since in the reals world corporate

income as well as personal income taxes exist. Much more there are exist transaction costs,

cost of capital is affected by financial leverage.

Bird-in- hand

This model basically has its foundation from the reasoning that ' what is available now is

preferable to what may be generated the future'. From the view of Lintner and Gordon

(1959), investors are risk averse and shall choose to receive dividend pay-out now than any

projected capital gain. In this respect, dividend payments are relevant and conducive

influence market value. From the views of these researchers, current dividends displaces

investors’ uncertainty but anticipated gains increases investors uncertainty. This theory is real

as it is applicable to the current world. In this regard, investors prefer holding dividend cash

now rather than being promised dividend in the future. Hence dividend policy is vital and

have impact on share price of firms.

Tax-Preference Theory

Howatt et al., (2009) hold the view that investors are scared with higher taxes on dividend.

This is because it produces low or no dividend pay-outs. Hence makes investor induces

investors to choose prefer capital gains and thus reduce their taxable income.

For instance in Kenya dividends are taxed 5% while capital gains are tax exempt. With this

real world situation investors shall prefer capital gains than dividend since there would be not

tax of capital gains. This theory is therefore realistic. In that because of the high tax burden

on dividends many investors prefer capital gains than dividend payments.

Assessing theories on dividend policies such as Miller and Modigliani (M&M) dividend

irrelevant model (1965), Bird-in- hand, and Tax-Preference Theory, it is observed that the

theory of dividend irrelevance is not real and cannot be applied in this world. However, the

Bird-in- hand, and Tax-Preference Theory is practised and real.

According to the existing empirical literature, what are the main determinants of

dividend payment in Ghana? Support your analysis with references from current

literature.

Dividend is generally considered as the returns on one’s investment (Lee, 2009) after

investing in a company. Firms however, consider several factors before paying out dividend .

among some Ghanaian firms it is noticed that they consider factors such as The State of

Economy, Taxation Policy , Desire of the Shareholders , and Liquidity position.

The State of Economy: it is observed that in the Ghanaian setting when the general economy

is booming many firms are poised to pay dividend or even increase their dividend pay-out.

However, in stifled economic conditions especially during the power outage era (2012-2015),

many firms devoid of paying dividend or even increasing their dividend payout. According to

Naceur, et al. (2006) when an economy is experiencing series of uncertainties or recessions,

management of firms normally retain all earnings so as to secure liquidity position and have

the ability to absorb future shocks. However, in economic prosperity, management often

maintain balance by distributing dividends.

Taxation Policy: It is also observed that taxation have due influence on dividend payment in

Ghana. In that high tax obligation on firms cause management of firms to reduce their

dividend pay-out which less tax obligation gives back cash to the firms hence enabling them
to pay better dividend amount. As per Naceur, et al. (2006), taxation policy is a factor that

impacts corporate dividend policy. That is, high corporate taxation decreases earnings and

this in effect affects dividend payout.

Desire of the Shareholders: It is also observed that in the country, when there is upsurge in

the voices of shareholder or investors on not receiving dividend on an invested stock it

considerably have effect on the management of firms to pay dividend. To Naceur, et al.

(2006), many investors make investment so as to gain some sought of regular flow of returns.

Hence make conscious desire for regular dividends so as to reduce any sort of insecurity

about the firm and guarantee his or her financial position.

Liquidity position: In the Ghanaian setting, a cash highly liquid corporation have a high

tendency of dishing out dividend whereas those with liquidity challenge find themselves

challenged in paying dividends their investors. Naceur, et al. (2006), asserts that declaring

retained earnings does not necessarily and sufficient mean there is available cash. To these

scholars’ available cash is a key factors influencing dividend policy of a firm. In this regard,

the liquidity of a firm strictly impacts the manner of financing, investment as well as financial

decision of a firm.

Conclusion

According to existing literature, it was observed that the main determinants of dividend

payment in Ghana include The State of Economy, Taxation Policy, Desire of the

Shareholders and the Liquidity position of the firm:

years’ worth of share performance and dividend data (dividend payout and dividend

yield) for 10 listed companies in Ghana which declared dividends regularly for 2014 to

2018. By analyzing your data, discuss whether dividend policy does have an impact on

shareholder wealth for firms listed in Ghana.

The part of the report make empirical attempt to determine whether dividend policy has

impact on shareholder wealth in Ghana. Consideration is made with respect to some carefully

selected listed companies on the Ghana Stock Exchange. Listed companies used in this

respect include Cal Bank, Standard Chartered Bank (SCB), Camelot, Anglo Gold Ashanti

(AGA), Societe Generale Ghana (SoGB), Benso oil Palm Plantation (BOPP), Ecobank

Ghana (EBG), GOIL, Total, and Ghana Commercial Bank (GCB).

According to Kouki and Guizani (2009), shareholder wealth can be valued at the current

market price of the stock. In this respect, this study uses the market price of stock of listed

firms to represent the shareholder value of firms in the market. Below is a table showing the

market price per share of listed firms under consideration.

Market price per share

Listed

companies 2014 2015 2016 2017 2018

5 CAL 0.8 1 0.75 1.08 0.95

3 SCB 0.3 0.34 0.2 0.2 0.41

1 Camelot 0.09 0.12 0.12 0.11 0.1

37 37 37 37 37
6 AGA

2 SoGB 0.72 0.8 0.6 0.82 0.86

10 BOPP 2.96 2.5 2.08 6.11 5.1

4 EBG 7.6 7 6.4 7.57 7.5

9 Total 2.95 5.1 1.97 3.53 4.05

8 GCB 5.84 3.79 3.51 5.02 4.64

5.995 5.905 5.373 6.413 6.541

Mean market price per share was ¢5.995 for year 2014, ¢5.905 for year 2015, ¢5.373 for

year 2016, ¢6.413 for year 2017 and ¢6.541 for year 2018.

Below is a table showing the Dividend per share of listed firms under consideration.

Dividend per share

2014 2015 2016 2017 2018

1 CAL 0.081 0.097 0 0 0.048

2 SCB 0.0758 1.12 0.37 0.0442 0.0568

3 Camelot 0.006 0.0075 0.0075 0.0098 0.0098

AGA 0 0 0.3634 0.20916 0.2931

5 SoGB 0 0.076 0.076 0.033 0.040

6 BOPP 0.0706 0.0469 0.0628 0.0628 0.034

7 EBG 0.79 0.84 0.82 0.82 0.84

8 GOIL 0.02 0.025 0.025 0.028 0.042

9 Total 0.0771 0.1151 0.1148 0.0701 0.0768

10 GCB 0.32 0.33 0.38 0.1 0.3

0.14405 0.26575 0.22195 0.137706 0.188944444

year 2016, ¢0.1377 for year 2017 and ¢0.1889 for year 2018.

Dividend yield is found by spreading dividend per share on stock price per share for each

period considered respectively. Below is a table showing the Dividend yield of listed firms

under consideration.

Dividend yield

2014 2015 2016 2017 2018

1 CAL 0.10125 0.097 0 0 0.050526316

2 SCB 0.2526667 3.294118 1.85 0.221 0.138536585

3 Camelot 0.0666667 0.0625 0.0625 0.089091 0.098

AGA 0 0 0.009822 0.005653 0.007921622

5 SoGB 0 0.095 0.126667 0.040244 0

6 BOPP 0.0238514 0.01876 0.030192 0.010278 0.006666667

7 EBG 0.1039474 0.12 0.128125 0.108322 0.112

8 GOIL 0.0118343 0.017857 0.022727 0.010409 0.00875

9 Total 0.0261356 0.022569 0.058274 0.019858 0.018962963

10 GCB 0.0547945 0.087071 0.108262 0.01992 0.064655172

Average 0.06411464 0.3814874 0.2396569 0.0524775 0.050601932

Mean Dividend yield was ¢0.0641 for year 2014, ¢0.3814 for year 2015, ¢0.2396 for year

2016, ¢0.0524 for year 2017 and ¢0.0506 for year 2018.
 In determining the impact of dividend policy on shareholder wealth, it is drawn that

shareholder wealth is the dependent variable and dividend policy (which is made of dividend

yield and dividend per share) make up the independent variables.

Fv = a0 +b1Dp +b2Dy+ e

Where

a = Intercept

Fv= Firm value

Dy= dividend yield

Dp = dividend per share

Coefficient Table

Standard Lower Upper Lower Upper

Coefficients Error t Stat P-value 95% 95% 95.0% 95.0%

- -

Intercept 5.667056 1.658308 3.417372 0.075995 1.46807 12.80218 1.46807 12.80218

dividend per - -

share 4.959946 11.68919 0.424319 0.712618 45.3346 55.25445 45.3346 55.25445

- -

dividend yield -3.63028 4.240136 -0.85617 0.482109 21.8741 14.61355 21.8741 14.61355

Linear regression developed from the coefficient Table is shown below

Fv= 5.66 – 3.63028 Dy +4.959Dp

Information from this model is that, firm value have negative link to dividend yield. This

implies that the higher the value of dividend yield for the stock held by an investor the lower

the firm value. This relation is however not significant given a probability value of 0.48. a
study by Lashgari and ahmadi (2014) on stock exchange of Tehran also found a negative

association between share per price share and dividend payout ratio. On the other hand,

dividend per share was found to have had a positive link to firm value. In that a high dividend

per share could result in an increase in the firm value of the company. This was however

insignificant given a probability value of 0.712. A study by Kenyoru et al. ((2013) in Kenya

showed a positive link between shareholder wealth and dividend per share.

Conclusion

Deduction drawn from the above presentation is that, there is a direct and positive relation

between dividend per share and firm value. However, there is also a direct and negative effect

of dividend yield on firm value. From this is can be said that whereas dividend per share have

a positive impact on shareholder value, dividend yield as a negative impact on shareholders’

value. Hence dividend policy have impact on shareholder value bit this depends on the type

of policy pursued by the firm.

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