The Effect of Working Capital Management on Dividend Policy: An Empirical Analysis of Listed Firms in Ghana
DOI:
https://doi.org/10.15282/ijim.9.0.2021.5952Keywords:
Dividend policy, Working capital, Profitability, GhanaAbstract
Relying on more recent data spanning 2007-2016, this paper investigates the impact of working capital management (WCM) on dividend policy of listed non-financial firms in Ghana. Specifically, the study assesses the effect of cash conversion cycle (CCC), days inventory outstanding (DIO), profitability, and firm growth on dividend policy. Employing the ordinary least squares (OLS) analytical technique, the findings reported that working capital management (in terms of cash conversion cycle and days inventory outstanding) and dividend policy are positively related, with DIO having a significant effect on dividend policy. The results also established a positive association between the control variables (profitability and firm growth) and dividend policy albeit insignificantly. Based on the findings, the study concludes that working capital management in terms of days inventory outstanding (DIO) is a critical factor influencing firms’ dividend policy decisions. The study extends the inconclusive empirical evidence on the determinants of dividend policy and fills the lacuna in existing literature by focusing on how working capital management practices influence dividend policy of firms in Ghana. The findings are also useful to the board of directors of non-financial firms in deciding an appropriate dividend policy, and to the shareholders in making investment decisions.
References
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Yakubu, I. N. (2019). Revisiting the Factors Influencing Corporate Dividend Policy Decisions: Evidence from Listed Banks in Ghana. Management and Accounting Review (MAR), 18(3), 31-50.
Yakubu, I. N., Alhassan, M. M., & Fuseini, A. A. (2017). The Impact of Working Capital Management on Corporate Performance: Evidence from Listed Non-Financial Firms in Ghana. European Journal of Accounting, Auditing and Finance Research, 5(3), 68-75.
Yusof, Y., & Ismail, S. (2016). Determinants of dividend policy of public listed companies in Malaysia. Review of International Business and Strategy, 26(1), 88-99.
Zhuang, L. (2008). Determinants of Corporate Dividend Policy in the UK market. Dissertation. University of Nottingham: United Kingdom.
Agyemang Badu, E. (2013). Determinants of dividend payout policy of listed financial institutions in Ghana. Research Journal of Finance and Accounting, 4(7), 185-190.
Ahmed, H., & Javid, A. Y. (2008). The determinants of dividend policy in Pakistan. International Research Journal of Finance and Economics, 29, 110-125.
Al-Kuwari, D. (2009). Determinants of the dividend policy of companies listed on emerging stock exchanges: the case of the Gulf Cooperation Council (GCC) countries. Global Economy and Finance Journal, 2(2), 38-63.
Al-Najjar, B., & Hussainey, K. (2009). The association between dividend payout and outside directorships. Journal of Applied Accounting Research, 10(1), 4-19.
Amidu, M., & Abor, J. (2006). Determinants of dividend payout ratios in Ghana. The journal of risk finance, 7(2), 136-145.
Anil, K., & Kapoor, S. (2008). Determinants of dividend payout ratios-a study of Indian information technology sector. International Research Journal of Finance and Economics, 15(1), 63-71.
Bhattacharya, S. (1979). Imperfect information, dividend policy, and “the bird in the hand” fallacy. Bell journal of economics, 10(1), 259-270.
Bushuru, R.W., Basweti, A.K., & Mukonyi, P. M. (2015). The Relationship Between Working Capital Management and Divided Payout Ratio of Firms Listed in Nairobi Securities Exchange. International Journal of Economics, Commerce and Management, 3(11), 285-296.
Chen, J., & Dhiensiri, N. (2009). Determinants of dividend policy: The evidence from New Zealand. International Research Journal of Finance and Economics, 34(34), 18-28.
Gill, A., Biger, N., & Tibrewala, R. (2010). Determinants of dividend payout ratios: evidence from United States. The Open Business Journal, 3(1).
Gujarati, D. (2003). Basic Econometrics. Fourth Edition. Singapura: McGraw-Hill.
Hashemi, S. A., & Zadeh, F. Z. F. (2012). The impact of financial leverage operating cash flow and size of company on the dividend policy (case study of Iran). Interdisciplinary Journal of Contemporary Research in Business, 3(10), 264-270.
Ho, H. (2003). Dividend policies in Australia and Japan. International Advances in Economic Research, 9(2), 91-100.
Imran, K. (2011). Determinants of dividend payout policy: A case of Pakistan engineering sector. The Romanian Economic Journal, 41(14), 47-59.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Kania, SL., & Bacon, F. W. (2005). What factors motivate the corporate dividend decision? ASBBS E-Journal, 1(1), 97-107.
Kaźmierska-Jóźwiak, B. (2015). Determinants of dividend policy: evidence from polish listed companies. Procedia economics and finance, 23, 473-477.
Lintner, J. (1956). Distribution of incomes of corporations among dividends retained earnings and taxes”. American Economic Review, 46(2), 97-113.
Makori, D. M., & Jagongo, A. (2013). Working capital management and firm profitability: Empirical evidence from manufacturing and construction firms listed on Nairobi securities exchange, Kenya. International Journal of Accounting and Taxation, 1(1), 1-14.
Malik, F., Gul, S., Khan, M. T., Rehman, S. U., & Khan, M. (2013). Factors influencing corporate dividend payout decisions of financial and non-financial firms. Research Journal of Finance and Accounting, 4(1), 35-46.
Marfo-Yiadom, E., & Agyei, S. K. (2011). Determinants of dividend policy of banks in Ghana. International Research Journal of Finance and Economics, 61(61), 99-108.
Miller, M., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 34(4), 411-433.
Oladipupo, A. O., & Ibadin, P. O. (2013). Does working capital management matter in dividend policy decision? Empirical evidence from Nigeria. International Journal of Financial Research, 4(4), 140-145.
Olang, M. A., & Grace, A. M. (2017). Effect of Working capital on the Dividend pay-out by firms firms listed at the Nairobi Securities Exchange, Kenya. International Journal of Finance and Banking Research, 3(2), 23-33.
Olarewaju, O. M., Migiro, S. O., & Sibanda, M. (2019). Examining bank-specific determinants of the dividend payout ratio of Sub-Saharan Africa banks: the panel GMM approach. Afro-Asian Journal of Finance and Accounting, 9(1), 40-59.
Ramli, N. M. (2010). Ownership structure and dividend policy: Evidence from Malaysian companies. International Review of Business Research Papers, 6(1), 170-180.
Utami, S. R., & Inanga, E. L. (2011). Agency costs of free cash flow, dividend policy, and leverage of firms in Indonesia. European Journal of Economics, Finance and Administrative Sciences, 33(6), 7-24.
Uwuigbe, O. R. (2013). Determinants of Dividend Policy: A study of selected listed Firms in Nigeria. Manager journal, 17, 107-119.
Westerfield, R., & Jordan, B. D. (2007). Essentials of corporate finance. McGraw-Hill/Irwin.
Yakubu, I. N. (2016). Bank-Specific and Macroeconomic Determinants of Commercial Banks Profitability in Ghana. International Finance and Banking, 3(2), 89-99.
Yakubu, I. N. (2019). Revisiting the Factors Influencing Corporate Dividend Policy Decisions: Evidence from Listed Banks in Ghana. Management and Accounting Review (MAR), 18(3), 31-50.
Yakubu, I. N., Alhassan, M. M., & Fuseini, A. A. (2017). The Impact of Working Capital Management on Corporate Performance: Evidence from Listed Non-Financial Firms in Ghana. European Journal of Accounting, Auditing and Finance Research, 5(3), 68-75.
Yusof, Y., & Ismail, S. (2016). Determinants of dividend policy of public listed companies in Malaysia. Review of International Business and Strategy, 26(1), 88-99.
Zhuang, L. (2008). Determinants of Corporate Dividend Policy in the UK market. Dissertation. University of Nottingham: United Kingdom.
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Published
2021-01-05
How to Cite
Yakubu, I. N. (2021). The Effect of Working Capital Management on Dividend Policy: An Empirical Analysis of Listed Firms in Ghana. International Journal of Industrial Management, 9, 25–31. https://doi.org/10.15282/ijim.9.0.2021.5952
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Vol 9 2021
