Impact of taxation leverage, Growth and profitability on dividend policy of Nepalese commercial Banks

Abstract

Dividend policy refers to the proportion of earnings distributed as a dividend and the rest kept for further investment i.e. retained earnings. Dividend policy is a strategy used by a company to determine the amount and timing of dividend payments. The major objective of this study is to examine the impact of taxation, leverage, growth and profitability on dividend policy of Nepalese commercial banks. Besides the major objectives, the specific objectives of this study is to determine the relationship between taxation, leverage, growth, profitability and bank size on dividend yield ratio and proposed dividend. The study is based on the secondary data which are gathered for 21 commercial banks in Nepal for the period of 8 years from 2012/13 to 2019/20. The secondary data and information have been collected from the annual reports of selected commercial banks, banking and financial statistics, NEPSE annual report and bank supervision report published by Nepal Rastra Bank. The research design adopted in this study is descriptive and causal comparative research design. The major finding of the study is that, the correlation analysis reveals taxation, growth, profitability and bank size is positively related to dividend yield ratio and proposed dividend. Similarly, the result also shows that leverage is positively related to dividend yield ratio and negatively related to proposed dividend. The regression analysis reveals that taxation, growth, profitability and bank size has the positive beta coefficient. It means positive and a significant impact on the dividend yield ratio and purposed dividend. Similarly, leverage has a positive beta coefficient to dividend yield ratio and negative beta coefficient to purposed dividend. It means positive and a significant impact on dividend yield ratio and negative and a significant impact on purposed dividend. The major conclusion of the study is that taxation, leverage, growth, return on assets and bank size influence dividend yield ratio and proposed dividend. Of these factors, return on assets is the most important factor. The Implications have been forwarded that the banks are recommended to increase their total assets, market to book ratio, return on assets and should decrease their debt to equity ratio to increase dividend yield ratio.