FIRM SPECIFIC DETERMINANTS OF DIVIDEND PAYOUT: AN ANALYSIS OF GOVERNMENT AND PRIVATE BANKS

Abstract

Dividend decisions are pivotal in corporate finance, impacting shareholder wealth and firm financial health. This study examines the determinants of dividend payout ratios across six commercial banks in Nepal over a comprehensive ten-year period from 2013/14 to 2022/23. Utilizing a combination of descriptive and analytical research designs, the investigation focuses on key financial metrics including profitability, liquidity, firm size, growth prospects, leverage, and earnings per share (EPS) to discern their influence on dividend policy formulations. The findings suggest a complex relationship between these factors and dividend payout decisions. While leverage and EPS exhibit a positive correlation with dividend payments, indicating that banks with higher leverage and EPS tend to distribute higher dividends, profitability, liquidity, size, and growth demonstrate a negative correlation. This implies that factors such as greater profitability or larger size do not necessarily lead to higher dividend payouts in the sampled banks. Statistical analysis, including Pearson correlation and regression models, reveals that these variables do not consistently and significantly predict dividend payout ratios across the banks studied except size of the bank have negative significant effect on dividend payout ratio. The study underscores the lack of a uniform dividend policy among Nepalese commercial banks, highlighting that dividend decisions appear to be influenced by a multitude of factors beyond straightforward financial metrics. Consequently, the implications for bank management and policy makers are substantial. Financial directors and boards are encouraged to carefully consider the interplay of profitability, liquidity, growth trajectories, and leverage in their dividend policy frameworks to better align with shareholder expectations and market dynamics.