The Relationship Between Dividend Policy and Firm Financial Performance: Empirical Study of Non-Financial Listed Companies in Sri Lanka

Abstract

The purpose of this paper is to examine the dividend policy and how it impacts the financial performance of non-financial listed companies in Sri Lanka. The study employs a quantitative approach to determine the association between dividend policy and firm financial performance. The population of this study is listed as manufacturing, food, beverage, and tobacco companies in Sri Lanka from 2016 to 2020. Dividend policy is the independent variable, which is measured using the dividend payout ratio (DPR) and earnings per share (EPS). Return on equity (ROE) and return on assets (ROA) are used to measure the firm financial performance which is the dependent variable. Firm size and revenue are used as control variables for the study. The secondary data were gathered from the annual reports of the selected companies by using the convenience sampling technique. Moreover, several statistical analyses were performed by using Stata. The results concluded that DPR does not significantly impact the firm financial performance. Further, the findings indicate that EPS and firm size significantly positively affect the firm financial performance. The study serves as an addition to knowledge that is useful for policymakers, potential investors, academics, and other stakeholders to policy making or study the above companies.