Dividend Policy for Commercial Banks in Tanzania: Controlling for Random and Specific Effects

Abstract

The study examines the determining factors of dividend policy of the regulated Tanzania’s commercial banks, covering throughout 2009 to 2018. The variables under the study include dividend policy, firm size, liquidity, profitability and leverage. Data were collected from the audited financial statements, yearly reports, and proceedings from Annual General Meetings of the regulated commercial banks. The study examines Six (6) commercial banks in Tanzania. For inferential analysis, fixed and random effect panel data methods were employed. An ideal model was determined by using Hausman Test. Results revealed that while liquidity takes a negative yet minor effect in dividend pay-out of commercial banks in Tanzania, profitability and leverage revealed a positive and significant effect on the dividend pay-out. Furthermore, firm size determines dividend pay-out ratio since investors perceive big banks making profits are having greater chance to pay high dividends compared to small firms. This makes people invest in the banks expecting higher dividend yields in the future. The study findings will help the directors and management teams of banking sector to arrive at appropriate dividend policy. Moreover, the findings are useful to guide investors decisions. This research paper contributes to the commercial banks dividend policy body of knowledge. It also covers the gap in the prevailing literatures by concentrating on the issue of commercial banks in emerging markets specifically Tanzania.

Keywords: Dividend policy, Tanzania, Emerging market, Commercial banks, Determinants

DOI: 10.7176/RJFA/13-4-02

Publication date: February 28^th 2022