Dividend Policy and Firm’s Profitability: Evidence from Ethiopian Private Insurance Companies

Abstract

In many rapidly growing economies and emerging markets like Ethiopia, the insurance companies are expected to play a crucial role. The dividend decision is one of the critical financial managementdecisions for firms. Dividend decision is also among the widely addressed and controversial issue in field of finance. The inconclusiveness of dividend theories and empirical studies on the relationship between firm's profitability and dividend payout decisions is one of the most debatable topics inresearches. Hence, the objective of this study is to examine the relationship between dividend policy and Ethiopianprivate insurance company's profitability and to contribute to the ongoing debate. To achieve the objective of this study, secondary data were collected from the Audited annual financial statements of 8 private insurance companies in Ethiopia, from year 2006-2015. The study used purposive sampling technique to collect the necessary data. Descriptive statistics and Pearson correlation matrix were used for data analysis. Paneldata andPooled OLS regression model were also employed for empirical testing. Return on Asset (ROA) used as a measurement of insurance company's profitability (dependent variable) while dividend payout ratio used as the main explanatory variable. The controlling variables were firm size, tangibility and leverage. The findings of this study indicated that there is positive and significant relationship between profitability and dividend pay-out policy decision of Ethiopian private insurance companies. This result is also consistent with the Bird-in-the hand theory. The result also shows that leverage, size of insurance company and tangibility has relationship with profitability of insurance companies.

The Effects of Dividend Policy On the Price of Shares of Microfinance Companies In Developing Countries

“…Dividend yield has a positive and insignificant nexus with profitability, which indicates that higher or lower dividend yield has no relation with profitability. This result contradicts the findings of a prior study by Adimasu (2019). Similarly, the retention ratio has a direct and significant link with profitability that shows a lower or (higher) retention ratio has a positive direct relation to lower or (higher) profitability.…”

“…Meanwhile, dividend payout ratio and corporate size boost share prices. Adimasu (2019) found that dividend payout ratio and company size directly affect profitability. Leverage and tangibility negatively impact return on assets.…”

Determinants of profitability of insurance companies in Ethiopia: evidence from insurance companies from 2011 to 2020 years

“…In Ethiopia a lot of research has been done on financial institutions profitability with different statistical models and researchers. For instance, Bernabas (2018), Habtamu and Teferi (2020), Abate (2012), Daniel and Tilahun (2013) all studied by using internal factors and have not considered external factors like macroeconomic (gross domestic products, Inflation). And similarly, Sambasivam and Ayele (2013), Yuvaraj and Abate (2013), studied firm-specific factors but they also ignored macroeconomic factors affecting profitability.…”

Working Capital Turnover on Profitability Evidence on Manufacturing Firms in ASEAN

“…Companies need to continue to maintain the availability and adequacy of working capital because it is related to liquidity which is the lifeblood of a company [8]. In fact, working capital management is very important because it impacts a company's liquidity and profitability [9]. It is said that companies need to maintain a balance between liquidity and profitability because high liquidity can mean low risk and low profitability, and vice versa [10].…”