<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

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

Studia Universitatis Babes-Bolyai Oeconomica

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

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...

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

Published Online: May 26, 2018

Page range: 37 - 62

DOI: https://doi.org/10.2478/subboec-2018-0003

Keywords
Retention policy, Wald test, Granger causality, Stakeholders’ interest, Creditors’ right, Wealth maximisation

© 2018 Odunayo Magret Olarewaju et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

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

Published Online: May 26, 2018

Page range: 37 - 62

DOI: https://doi.org/10.2478/subboec-2018-0003

KeywordsRetention policy, Wald test, Granger causality, Stakeholders’ interest, Creditors’ right, Wealth maximisation

© 2018 Odunayo Magret Olarewaju et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
Retention policy, Wald test, Granger causality, Stakeholders’ interest, Creditors’ right, Wealth maximisation