Nexus of Market Risk, Dividend Policy and Commercial Banks’ Performance in Sub-Saharan Africa

Olarewaju Odunayo M. ()
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Olarewaju Odunayo M.: Durban University of Technology, Faculty of Accounting and Informatics, Department of Management Accounting, P.O. Box 1334, Durban, 4000, South Africa

Folia Oeconomica Stetinensia, 2020, vol. 20, issue 2, 279-297

Abstract: Research Background: The concept of risk is of great importance in any financial system, due to unstable economic situations and fluctuating environmental factors. Like other variables, risk has a significant effect on firms’ returns and profit.Purpose: This study aims at examining the relationship between dividend policy and performance taking cognisance of the uncontrollable risk (market risk).Research methodology: This study was modelled using 250 commercial banks from 30 selected Sub-Saharan African countries in the period 2008 to 2017. The Panel-Vector Error Correction Model was used to estimate the model.Result: From the long run analysis, a long run relationship between dividend policy, agency cost, and bank performance is evident. The disequilibrium will take about 39.5% yearly speed of adjustment to return to a steady state. There is an inverse relationship between Lending interest rate (market risk proxy) with bank performance while there is a positive relationship of foreign exchange rate (market risk proxy) and bank performance in SSA.Novelty: Market risk’s influence on the relationship between dividend policy and bank performance was firstly established. Therefore, it is recommended that the banking sector in SSA should focus more on endogenous factors and review some of their policies as these contribute more significantly to variations in their performance than exogenous factors.

Keywords: Agency Cost; Sub-Saharan Africa; Impulse Response function; Variable Decomposition (search for similar items in EconPapers)
JEL-codes: B22 C33 G21 G35 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:foeste:v:20:y:2020:i:2:p:279-297:n:20

DOI: 10.2478/foli-2020-0048

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