Professional Documents
Culture Documents
Submitted To
Submitted By Dr. S.M. SOHRAB UDDIN
Name of student: Md Daiyan Sharif. Adjunct Faculty-Professor
I D Number: MBA 02006763. Department of Business
Date of Submission:04/06/20. Administration
Port City International University
Abstract
The aim of the study is to investigate the critical factors in
determining the dividend payout policy of Bangladeshi
commercial banks listed in Dhaka Stock Exchange. This study
considers the effect of growth rate, beta coefficient, and
return on asset, size of shareholders, company size and listing
age on dividend payout ratio by using a panel dataset of listed
banks from 2007 to 2011 using the multiple regression
analysis. Empirical result shows that the dividend policies are
positively affected by profitability and negatively affected by
sponsors’ ownership and the effect of growth and beta
coefficient on dividend policy are not statistically significant.
It has been found that when the ownership concentration is
high the dividend payment is low. This may suggest that large
investors are extracting benefit at the expense of minority
shareholders. It can also be inferred from the study that
increased level of profitability leads to robust dividend payout
policy.
Determinants of Dividend Policy of NCC Bank
The enormous number of published theoretical and empirical
papers on dividend policy continues to be one of the
prominent factors in the corporate finance literature as it a
debatable issues and still a puzzle. When a company
announces unexpected dividend raise or shrink, the market
responds dramatically. The firm sent a signal in the market as
a financially distressed if there is a decrease or elimination of
dividend. Thus dividend policy has a great impact on the
sentiments of the investors and it dealt with many critical
corporate issues such as agency cost, clientele effect and
share assessment.
Bank plays an important role in the financial sector of
Bangladesh. It supplies more than 90% money of overall
financial system of this country. Hence, this paper focused on
the dividend policy of the NCC bank. This study investigates
the firm’s growth, beta, ownership concentration and the
profitability as the determinants on the dividend policy of
NCC bank.
Usually banks pay larger dividends than other industrial
firms and it holds true for Bangladesh as well. It has been
observed since 2009 the dividend of listed private
commercial banks in Bangladesh is decreasing in a
continuous basis. For example, the bank which declared
50% stock dividend in 2009, that declared only around 20%
dividends for the common stock holders in 2011. There are
even worse examples too, which is a demoralizing factor for
most of the stockholder in Dhaka Stock Exchange (DSE).
Dividend policy can be different for different countries
because of different tax policies, rules, regulations and
different institutions and different capital markets. The
factors explaining dividends are important because the
intrinsic model holds that a stock’s price is the present
value of its future dividend
An empirical study on 30 DSE listed private commercial
banks in Bangladesh during 2006-2012. The study was
unable to found any statistically significant relationship
between the firms profitability, growth and size and the
payout ratio throughout the period of study.
Overview on the dividend payments of NCC Bank
We have analyzed the annual reports of the NCC banks in
Bangladesh from 2007-2011 and calculated the dividend
payout ratio for each of the year. The dividend payout
ratios of the NCC banks is given in table 1
Years 2007 2008 2009 2010 2011 Avge Std Max Min
NCC
40.00 55.00 50.00 42.00 69.00 51.20 11.65 69 40
BANK
It is evident from the table that NCC Bank has maintained a very high
level of dividend payout ratios over the years. One significant
observation from the table is that NCC bank prefer to maintain a high
level of dividend payout ratio.
Research Questions and Hypotheses
Development
We have used the annual reports of the bank to calculate
the ratios for different periods. In order to select the
variables, we focused on some major papers on dividend
policy. For example Gupta and Banga (2010) found that
leverage, liquidity, profitability, growth and ownership
structure of the firm influence the dividend policy of a firm.
In another paper Dickens, Casey, and Newman (2003)
suggested that investment opportunity, size, expected
earnings, inside ownership and previous dividends are
critical factors in bank holding company dividend policy. So
after a in depth analysis we have chosen four factor which
seems to influence the dividend policy of the NCC Bank and
they are firms growth, beta, ownership concentration and
profitability.
Growth
Research on NCC bank shows that growth of the
company is influencing the dividend policy.
Frankfurter found a positive relationship between
growth and dividend policy of a company. Another
study found that growing firms choose further
dividend increases compared to mature firms. The
NCC bank provide lower dividend payout ratio when
they are experiencing higher revenue growth,
presumably because these growth entails higher
investment expenditure.
Beta
It has been found from the previous studies that
there is negative correlation between dividends and
beta. It indicates that firms with higher betas pay
lower dividends to reduce the costs of external
financing, either because higher betas are associated
with higher leverage or because firms distribute
dividends to affect non diversifiable risk of their
stocks.
Ownership concentration
Past research shows that there are significant
relationship between ownership concentration and
dividend policy. Kumar found support for the
association between ownership structure and
dividend payout policy. They find that there is a
significantly positive correlation between the state
ownership and cash dividends, but a significantly
negative correlation between the public ownership
and stock dividend.
Profitability
It measures the earnings power of a company. Return on Investments
(ROA) and Return on Equity (ROE) are the main indicators of the
profitability which positively influence the level of dividend of a firm.
Profitability is, therefore, a significant factor for dividend payment. A
company that earns a steady income is more likely to pay high dividends.
Bajaj and Vijh (1990) and Denis et al (1994) argue that if high dividend
yield firms attract investors with a preference for dividends, price
reactions to dividend changes will be larger for higher dividend yield
stocks.
On the basis of existing literature we can develop the following
hypotheses:
H1: There is a negative relationship between dividend policy and growth
rate
H2: There is no negative effect of beta on Dividend Payout Ratio
H3: There is an association between ownership concentration and
dividend policy
H4: There is a negative effect of profitability on Dividend Payout Ratio
Research Methodology
This study applied multiple linear regression model and correlation
analysis to analyze the association of dividend payout ratio with the
growth rate, beta coefficient, sponsor ownership and profitability.
Dividend Payout Ratio is the dependent variable which reflects the
dividend paid by the bank. The four independent variables are
Growth rate, Beta Coefficient, Sponsor ownership and Profitability
(Return on Assets). The model has been expanded by the control
variables that include the company’s size and the age of listing on
the stock exchange.
The model is expressed as follow:
D/P = α +β1GT+ β2 BETA + β3 SWON + β4ROA+ β5 NS +β6 CSIZ +
β7 AGE + Є
Where D/P is the dividend payout ratio of the bank and the
independent variables are defined in Table 2.
Variable Label Variables Variable Definition
Dependent Variables Cash Dividend/Net Income
available to
Shareholders
DP Dividend Payout Ratio
Independent Variables
cash dividend 1
Growth Pearson 1
Correlation
Sig. (2-tailed)
LEV Pearson Corr. 0.072 -0.062 -0.014 0.129 0.089 0.214 0.057 1
GB Pearson Corr. -0.164 0.070 0.144 -0.024 -0.045 -0.106 -0.252 -0.075 1
Sig. (2-tailed) 0.045 0.398 0.078 0.772 0.581 0.197 0.002 0.359
Note.**Correlation is significant at the 0.01 level (2-tailed).