Determinants of Dividend Policy Of Private Insurance Companies In Ethiopia

Abstract

The main aim of this study was to examine the determinants of dividend policy of private insurance companies in Ethiopia. Dividend payout policy was dependent variable where as profitability, liquidity, firm size, firm growth, leverage and age of firm were independent variables and GDP as a control variable. Explanatory research design was employed in this study. A balanced Panel data covering ten years period from 2005 – 2014 for a sample of eight (8) private insurance companies was analyzed by using descriptive, correlation and multiple regression analysis. The study was based on quantitative data which were gathered from secondary sources obtained from private insurance companies, National bank of Ethiopia and Ministry of Finance and Economic Development. The fixed effects technique has been applied to find out the most significant variables that have impact on dividend decisions of private insurance companies. The result shows that firm size, age of firm and GDP has statistically significant positive influence on dividend payout of private insurance companies in Ethiopia. On the other hand profitability influences dividend policy negatively and significantly. Contrary to theoretical prediction, the study finds that firm growth, leverage and liquidity have a statistically insignificant influence on dividend policy of private insurance companies in Ethiopia. The study suggested that the managers of private insurance companies should give consideration to profitability, firm size, age of firm and GDP when they set dividend policy as they are found to be the most significant variables that affect dividend policy of private insurance companies.