Dividend Payout, Retention Policy and Financial Performance in Commercial Banks: Any Causal Relationship?

Olarewaju Odunayo Magret (), Migiro Stephen Oseko and Sibanda Mabutho
Additional contact information
Olarewaju Odunayo Magret: Durban University of Technology, South Africa
Migiro Stephen Oseko: University of KwaZulu-Natal, South Africa
Sibanda Mabutho: University of KwaZulu-Natal, South Africa

Studia Universitatis Babeș-Bolyai Oeconomica, 2018, vol. 63, issue 1, 37-62

Abstract: Dividend policy remains one of the top ten unresolved issues in corporate finance including in the banking sector. Hence, this study explores data from 250 commercial banks in 30 Sub-Saharan African countries to establish the causal relationship between the use of two major dividend policies in the sector and financial performance for the period 2006 to 2015. The empirical results of the vector error correction block exogeneity Wald test and Pairwise Granger causality test reveal that only retention policies Granger cause performance (ROA), even though both major policies posit a positive relationship with performance (ROA) in the Vector Error Correction Model estimate. Therefore, commercial banks in Sub Saharan Africa and also in the entire world should use their free cash flows wisely by exploring all available viable investment opportunities. By doing this, not only owners’ profit but wealth is fully maximised such that their survival, value creation, and future growth is fully justified.

Keywords: Retention policy; Wald test; Granger causality; Stakeholders’ interest; Creditors’ right; Wealth maximisation (search for similar items in EconPapers)
JEL-codes: G21 G35 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/subboec-2018-0003 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:subboe:v:63:y:2018:i:1:p:37-62:n:3

DOI: 10.2478/subboec-2018-0003

Access Statistics for this article

Studia Universitatis Babeș-Bolyai Oeconomica is currently edited by Dumitru Matis

More articles in Studia Universitatis Babeș-Bolyai Oeconomica from Sciendo
Bibliographic data for series maintained by Peter Golla ().