The Role Of Corporate Tax, Earnings And Debt In Determining Dividend Policy Of Firms

Cordelia Omodero
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Cordelia Omodero: Covenant University Ota

Business Management, 2022, issue 3 Year 2022, 46-69

Abstract: Dividend policy is a critical component of corporate finance strategy, which, when properly implemented, will allow firms to grow. In general, equity holders or corporate fund providers expect a favourable dividend policy as a motivation and reward for their investment in a company. Despite this golden expectation, there are still certain factors that invariably determine the outcome of firms' dividend policies. This study investigates the influence of corporation tax, profits, and debt in determining business dividend policy. In this paper, we argue that dividend policy is influenced not only by corporate taxation, but also by other factors such as profitability and debt. The panel statistics are derived from the businesses' public financial statements, which cover the years 2016 - 2020. To evaluate the panel data, the study uses Pairwise Granger Causality Tests, the Hausman check, the collective outcome prototypical, and the coincidental upshot model. Four null premises are examined, and the results reveal that corporate taxes and earnings have an affirmative impact on businesses' surplus payments. Contrarily, debt and interest expenditures have no momentous inspiration on surplus disbursement. The analysis shows that dividend payments and debt are diametrically opposed. The paper suggests equity financing to enhance organizations’ business expansion.

Keywords: dividend payout policy; corporate taxation; earnings; firms; debt (search for similar items in EconPapers)
JEL-codes: G35 H25 H32 H63 (search for similar items in EconPapers)
Date: 2022
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