Acta Universitatis Danubius. Œconomica, Vol 14, No 3 (2018)

Re-examining Causal Relationship between Dividend Policies and Commercial Bank Performance: Evidence from 30 Sub-Saharan African Countries

Odunayo Magret Olarewaju


Objective: This paper re-establishes the causality between two dividend policies (dividend payoutand dividend reinvestment plans) and financial performance (Return on Equity). Prior Work:Dividend policies issues have been continually debated around the world with mixed results, and yetto date, no definite conclusions have been reached. Approach: The study conveniently andpurposively used 250 commercial banks from 30 SSA countries over the period between 2006 and2015 to run long-run causality tests. Results: The results from the block exogeneity Wald test fromthe panel vector error correction model, and the pairwise Granger causality test shows that there is aunidirectional causality between return on equity and dividend payout ratio. Implications: Thisimplies no causality between dividend payout ratio/ retention ratio and banks’ return on equity overthe study period. Value: Hence, we conclude that the widely adopted model for the payment ofdividends in the SSA banking market is a win-lose game, as there is no causality between dividendpayment and bank performance. As such, we recommend that other dividend policies that canminimize future financing costs, increase bank assets, and improve the future growth prospects of theregion be explored.


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