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Dividend Payout and Performance of Quoted Manufacturing
Firms in Ghana

Richard Ndi,anla &nan-iri
1.
/ho0as 1oran23e
2
1.First Atlantic 4an2 5td) Atlantic !lace No.1 Se6enth A6enue) Ridge 7est) Accra) 8hana
2.9onsultanc3 and 4usiness Incu,ation 9entre) Institute of :ntre"reneurshi" and :nter"rise ;e6elo"0ent
1u0asi !ol3technic) !. &. 4o< $(%) 1u0asi) 8hana.
.:0ail of corres"onding author= ndi,anla>3ahoo.co.u2 ronan-iri>firstatlantic,an2.co0.gh

Abstract
!ur"ose - /his stud3 sought to ascertain the i0"act of di6idend "a3out on the financial "erfor0ance of
0anufacturing fir0s which trade on the 8hana Stoc2 :<change. !anel data e<tracted fro0 audited financial
state0ents of sa0"led fir0s fro0 2**% to 2*11 financial 3ears were anal3sed within the fra0ewor2 of the fi<ed
effects 0odel after carr3ing out ?aus0an s"ecification test. /he descri"ti6e statistics show that the a6erage
di6idend "a3out is +2.9+@ while the 0ean "erfor0ance return on assets# is 1.*$@ during the stud3 "eriod. /he
regression results re6eal that di6idend "a3out significantl3 ,ut negati6el3 i0"acts on Auoted 0anufacturing
fir0sB financial "erfor0ance in 8hana. For the control 6aria,les) siCe and le6erage were in6ersel3 related to
"erfor0ance whiles sales growth "ositi6el3 correlated with "erfor0ance. :<ce"t siCe) all the control 6aria,les
were found to ,e statisticall3 significant. Intuiti6el3) Auoted 0anufacturing fir0s in 8hana which are interested
in accentuating their return on assets 0a3 ha6e to rationaliCe the Auantu0 of di6idend "a3out. /his will hel"
the0 accu0ulate high retained earnings to ,uttress in6est0ent in "ositi6e net "resent 6alue "ro-ects which will
fuel sales growth and there,3 lessen their de"endence on e<"ensi6e de,t finance in 8hana.
Keywords: ;i6idend "a3out) "erfor0ance) 0anufacturing fir0s) 8hana

1. ntroduction
;i6idend "olic3 is one of the core the0es in cor"orate finance. /herefore) it is not sur"rising that se6eral
research "a"ers s"anning se6eral decades ago ha6e ,een underta2en on this the0e. Research scholars including
Diller and Dodigliani 1961#) 8ordon 196+#) and 5intner 1962# ha6e all contri,uted to the di6idend "olic3
rele6ance and irrele6ance de,ate. /his "a"er focuses on ascertaining the i0"act of di6idend "a3out on the
financial "erfor0ance of Auoted 0anufacturing fir0s in 8hana fro0 2**% to 2*11 financial 3ears. So0e
scholars including Darfo-Eiado0 and Ag3ei) 2*11,F 8ul et al.) 2*12) Gwuig,e et al.) 2*12) and 4adu) 2*1+#
ha6e used di6idend "olic3 and di6idend "a3out interchangea,l3. ;i6idend "olic3 is the strateg3 a fir0 ado"ts in
distri,uting inco0e to its shareholders 8ill et al.) 2*1*# whiles di6idend "a3out is the inco0e "aid to
shareholders of a fir0 A0idu and A,or) 2**6#. A clear dichoto03 ,etween the two ter0s is crucial in
ad6ancing the de,ate on di6idend in cor"orate finance. A0idu) 2**7# reinforced this assertion when he re6ealed
that di6idend "olic3 and di6idend "a3out affect fir0 "erfor0ance in o""osite directions.
;i6idend "olic3 and "a3out research in 8hana as "u,lished in refereed -ournals ha6e largel3 centred
on Auoted fir0s on the 8hana Stoc2 :<change A0idu and A,or) 2**6F A0idu) 2**7F Adu-4oan3ah et al., 2*1+F
4adu) 2*1+# and ,an2ing institutions Darfo-Eiado0 and Ag3ei) 2*11a and Darfo-Eiado0 and Ag3ei) 2*11,#.
As 4a2er and !owell 2***# "ut it) di6idend "a3out differs fro0 industr3 to industr3. /his "osition is su""orted
,3 8ill et al 2*1*# who found the nature of the relationshi" ,etween di6idend "a3out and "rofita,ilit3 to ,e
different ,etween ser6ice and 0anufacturing fir0s in the Gnited States. /his "a"er contri,utes to the de,ate on
di6idend rele6ance ,3 focusing s"ecificall3 on Auoted 0anufacturing fir0s in 8hana. /hese 0anufacturing fir0s
"la3 2e3 roles in e0"lo30ent generation and 8ross ;o0estic !roduct 8;!# growth 1oran23e and AdarAuah)
2*1+#. 1ra2ah et al., 2**9# confir0 that the 0anufacturing sector is 6ital in e0"lo30ent) wages and
contri,ution to national out"ut. /he 0anufacturing su,-sector has also o6er the 3ears ,een a significant
contri,utor to the o6erall contri,utions ,3 the industr3 sector in 8hana ISS:R) 2*11#. A research into the
i0"act of di6idend "a3out on their financial "erfor0ance is necessar3 as it will assist res"ecti6e cor"orate
e<ecuti6es in 0a2ing di6idend "a3out decisions.
/he rest of the "a"er "resents o6er6iew of related literature) research 0ethodolog3) results and
conclusion.

!. "verview of #m$irica% &iterature
/he 6arious theories on cor"orate di6idend decisions such as agenc3 theor3) clientele effect) signalling theor3)
life-c3cle theor3 and ta< "reference theor3 ha6e ,een largel3 e<"ounded in cor"orate finance literature. /his
section re6iews current e0"irical literature relating to di6idend "a3out and fir0 "erfor0ance.
A0idu and A,or) 2**6# found "rofita,ilit3 and cash flow to ,e statisticall3 significant "ositi6e
deter0inants of di6idend "a3out ratio of listed fir0s in 8hana. /heir results also showed an in6erse association
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,etween di6idend "a3out) and sales growth and 0ar2et-to-,oo2 6alue. A0idu) 2**7# e<tended his studies with
A,or ,3 anal3Cing how di6idend "a3out affects the "erfor0ance of listed fir0s on the 8hana Stoc2 :<change
8S:#. ?e ,ased his studies on the financial data of sa0"led fir0s in 8hana fro0 1997 to 2**%. Fro0 the results
of the stud3) A0idu) 2**7# ascertained an in6erse relationshi" ,etween return on assets) and di6idend "a3out
and le6erage of Auoted fir0s on the 8hana Stoc2 :<change. /he nature of this relationshi" concurs with what
A0idu) 2**7# o,tained with res"ect to return on eAuit3 in the sa0e stud3. 9learl3) A0iduBs results do not 0o6e
in tande0 with the findings he 0ade with A,or with res"ect to the nature of the relationshi" ,etween di6idend
"a3out and "rofita,ilit3. /his notwithstanding) A0iduBs findings concur with that of 8ill et al., 2*1*#. 8ill et al
undertoo2 a stud3 on the deter0inants of di6idend "a3out in the 0anufacturing and the ser6ice industries in
Gnited States. /he3 found a negati6e correlation ,etween "rofita,ilit3 and standard di6idend "a3out when data
fro0 0anufacturing and ser6ice sectors were co0,ined to for0 the entire sa0"le. :<ce"t for the ser6ice industr3)
the sa0e relationshi" was also found to ,e true in the 0anufacturing industr3.
Adu-4oan3ahet) 2*1+# also sought to identif3 the deter0inants of di6idend "a3out "olic3 of so0e
selected fir0s on the 8hana Stoc2 :<change fro0 1997 to 2**6 financial 3ears. /he stud3 ,3 Adu-4oan3ah et
al., 2*1+# consisted of sa0"les fro0 0anufacturing as well as non-0anufacturing listed fir0s in 8hana. /his is
e6ident in the fact that the authors ,ased their stud3 on ten 1*# sa0"led fir0s "ur"orted to ,e 0anufacturing in
nature) contrar3 to the classification ,3 the 8hana Stoc2 :<change. According to the 2*11 8S: fact ,oo2) there
are onl3 se6en fir0s listed on its ,ourse that are 0anufacturing in nature. Not sur"risingl3) their finding that
"rofit realiCation is directl3 related to di6idend "a30ents is generall3 consistent with that of A0idu and A,or)
2**6# who also undertoo2 a stud3 on the deter0inants of di6idend "a3out ratios in 8hana fro0 199$ to 2**+.
1anwal and Su-ata) 2**$# o,tained a statisticall3 insignificant ,ut "ositi6e relationshi" ,etween
di6idend "a3out and "rofita,ilit3 in their stud3 in6ol6ing fir0s constituting 9NH I/ inde< of NS: in India fro0
2*** to 2**6. Si0ilarl3) 4adu) 2*1+# esta,lished a statisticall3 insignificant ,ut "ositi6e relationshi" ,etween
di6idend "aid and "rofita,ilit3 of listed financial institutions on the 8hana Stoc2 :<change ,etween 2**( and
2**9. /he findings of 1anwal and Su-ata) 2**$# on one hand and 4adu) 2*1+# on the other hand suggest that
"rofita,ilit3 does not necessaril3 influence di6idend "a3out in res"ect of the fir0s constituting the sa0"le siCe
for the two studies. 4adu) 2*1+# argue that 0anagers of such fir0s "a3 di6idends regardless of "re6ailing "rofit
le6els.
Few et al., 2**7# argued that non-di6idend "a3ing fir0s e<"erience low "rofita,ilit3 co0"ared with
fir0s which "a3 di6idends. /his is sur"rising in the sense that co0"anies which do not "a3 di6idends) ceteris
"ari,us) are e<"ected to ha6e enough retained earnings a6aila,le to su""ort "ositi6e net "resent 6alue ca"ital
"ro-ects. Nonetheless) "ro"onents of the agenc3 theor3 argue that conflict of interest arising fro0 "rinci"al-agent
relationshi" could ,ring a,out the "ursuance of 0anagersB narcissistic interests at the e<"ense of shareholders.
/hus cor"orate "rofita,ilit3 could ,e ad6ersel3 affected if 0anagers use the undistri,uted earnings in wa3s that
0a3 not ,e ,eneficial to shareholders.
Ag3ei and Darfo-Eiado0) 2*11a# studied the relationshi" ,etween di6idend "olic3 and "erfor0ance
in 8hana using a fi6e-3ear "anel data in6ol6ing 16 co00ercial ,an2s ending 2**+. /he3 found a "ositi6e
correlation ,etween "rofita,ilit3 and di6idend "aid. Si0ilarl3) Darfo-Eiado0 and Ag3ei) 2*11,# ascertained
"rofita,ilit3) de,t) collateral ca"acit3 and di6idend changes to ,e "ositi6e deter0inants of di6idend "a3out.
Gwuig,e et al., 2*12# also found a significant "ositi6e association ,etween the "erfor0ance of listed fir0s in
Nigeria and di6idend "a3out for the "eriod 2**6 to 2*1*. Gwuig,e et alBs result la3s credence to the findings of
A0idu and A,or) 2**6# and Ag3ei and Darfo-Eiado0) 2*11a# that a fir0Bs a,ilit3 to "a3 di6idends increases
with increases in "rofita,ilit3.
9on6entionall3) high "a3out ratios are e<"ected to result in low earnings growth. /his is ,ecause the
"a30ent of high di6idends di0inishes the internall3 generated funds a6aila,le for rein6est0ent "ur"oses.
Accordingl3) Farsio et al.) 2**%# "osit that a negati6e relationshi" e<ists ,etween di6idend "a3out and earnings
growth for fir0s which "a3 high di6idends at the e<"ense of in6est0ents in growth o""ortunities. ?owe6er)
"ro"onents of the free cash flow theor3 contend that low "a3out ratios "redate low earnings growth. 9onsistent
with the free cash flow theor3) di6idend "a3out ratios ha6e ,een found to 0o6e in tande0 with earnings growth)
es"eciall3 in de6elo"ed 0ar2ets Arnott and Asness) 2**+F Ihou and Ruland) 2**6F and 8wil30 et al., 2**6#.
Arnott and Asness) 2**+# argued that the tendenc3 for 0anagers to in6est in su,o"ti0al in6est0ent "ro-ects is
0ini0iCed when access to retained earnings is li0ited and 0anagers would ha6e to resort to alternati6e sources
of financing. /his notwithstanding) in a stud3 in6ol6ing +** Dala3sian fir0s listed on the 1uala 5u0"ur Stoc2
:<change fro0 2**1 to 2**() Al-/wai-r3) 2**7# educed that "a3out ratios ha6e no statisticall3 significant
association with earnings and earnings 6olatilit3) in a se0i-de6elo"ed 0ar2et such as Dala3sia. /he finding ,3
Al-/wai-r3 i0"lies that di6idend "a30ents a0ong Dala3sian fir0s do not de"end on "ast) current or future
earnings. /hus the findings ,3 Al-/wai-r3) 2**7# reinforce other studies such as 8len et al., 199(#) that the
effects of di6idend "a3out differ ,ased on the t3"e of 0ar2etJecono03) fir0 and o6er ti0e. ?ence) this stud3
contri,utes to the ,od3 of 2nowledge on di6idend "a3out with e6idence fro0 Auoted 0anufacturing fir0s in
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8hana.

'. Methodo%ogy
/he 0ain "ur"ose of this stud3 was to ascertain the i0"act of di6idend "a3out on the financial "erfor0ance of
Auoted 0anufacturing fir0s in 8hana. /his section gi6es a descri"tion of the research 0ethodolog3 e0"lo3ed in
achie6ing the o,-ecti6e of the stud3. S"ecificall3) the section "resents the sa0"ling and data collection
"rocedures) the 0odel s"ecification and an o6er6iew of statistical tests "erfor0ed.

3.1 Sampling and Data Collection
/he "o"ulation and sa0"le for this stud3 consisted of all the 0anufacturing fir0s Auoted on 8S: during the
stud3 ti0e fra0e. As at 2*1+) the 8S: classified se6en fir0s listed on its ,ourse as 0anufacturing in nature
1oran23e and AdarAuah) 2*1+#. /he data for the stud3 originated fro0 the audited financial state0ents of all
the Auoted 0anufacturing fir0s for the "eriod 2**% to 2*11 inclusi6e. /hese financial state0ents were o,tained
fro0 8hana Stoc2 :<change Fact 4oo2 and Annual Re"orts 8hana. /he financial state0ents used in this stud3
co0"rise of state0ents of financial "osition and co0"rehensi6e inco0e.

3.2 Model Specification
/o hel" i0"ro6e the efficienc3 of the econo0ic esti0ates) as a result of increased degrees of freedo0 and
reduced collinearit3) "anel data was used for the stud3. /he general for0 of the "anel regression eAuation could
,e stated as=
E
i)t
K L M NH
i)t
M e
i)t
2#
In eAuation 2#) su,scri"ts i and t res"ecti6el3 re"resents the cross-sectional and ti0e series di0ension of the
data) while L and N also connotes constant and regression coefficients res"ecti6el3. As E
i)t
indicates the
de"endent 6aria,le) H
i)t
re"resents the set of e<ogenous 6aria,les of fir0 i ti0e t) and e 0easures the error ter0.
In concordance with the 0odel used ,3 A0idu) 2**7#) the s"ecific "anel regression eAuation used for the stud3
is as follows=
R&A
i)t
K L M N
1
;!&G/
i)t
M N
2
SII:
i)t
M N
+
5:':
i)t
M N
%
S8R/?
i)t
M e
i)t
+#
7here=
R&A
i)t
K :arnings ,efore interest and ta< di6ided ,3 the ,oo2 6alue of assets for fir0 i in "eriod t
;!&G/
i)t
K ;i6idend "er share di6ided ,3 earnings "er share for fir0 i in "eriod tF
5:':
i)t
K /he ratio of total de,t to total assets for fir0 i in "eriod tF
SII:
i)t
K /he natural logarith0 of total assets for fir0 i in "eriod tF
S8R/?
i)t
K 8rowth in sales for fir0 i in "eriod t.
As eAuation + shows) return on assets R&A# ser6es as the de"endent 6aria,le. /his is used to 0easure the
0anufacturing fir0sB "erfor0ance. /he inde"endent 6aria,le is the di6idend "a3out ratio ;!&G/#. 5e6erage
5:':#) fir0 siCe SII:#) and sales growth S8R/?# are used as control 6aria,les.

3.3 Statistical Tests
/o chec2 the ro,ustness of the 0odel used in the stud3) a nu0,er of statistical tests were carried out. First)
!earson correlation was used to chec2 for the "resence of 0ulticollinearit3 a0ong the e<"lanator3 6aria,les.
Second) ?aus0an s"ecification test was "erfor0ed to decide the a""ro"riate esti0ation techniAue to use to
esti0ate the "ara0eters of the 6aria,les in the 0odel. Ne<t) the 4reusch-8odfre3J7ooldridge test was used to
test for serial correlation. Finall3) /he 4reusch-!agan test was used in order to test for heteros2edasticit3 to see
if the 6ariance for each o,ser6ation in the statistical 0odel is not the sa0e. /he R statistical software was used to
"erfor0 the statistical tests.

(. )esu%ts and Discussion
4.1 Descriptive Statistics
/he descri"ti6e su00ar3 statistics is re"orted in ta,le 1. /he Auoted 0anufacturing fir0s "aid 0ean di6idend of
+2.9+@ fro0 their earnings during the stud3 "eriod. ;uring this "eriod their a6erage return on assets stood at
1.*$@F whiles the 0ean 6alues for siCe) le6erage and sales growth were 7.1*1$) ($.7*@ and 27.%7@
res"ecti6el3. /he 0anufacturing fir0sB a6erage "rofita,ilit3 is significantl3 low co0"ared with the ratio of
di6idend "er share to earnings "er share. /he fir0sB reliance on de,t is also significantl3 high.

4.2 Correlation Matrix and Diagnostic Tests
/he !earson correlation test ta,le 2# is used to chec2 for 0ulticollinerait3. /he results show that
0ulticollinearit3 is not a "ro,le0 in the regression 0odel since the low correlation 6alues are not near "erfect
correlation.
Fro0 ta,le +) the "-6alue for the ?aus0an s"ecification test is significant at 99@. /his 0eans that the
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?aus0an test carried out su""orts the fi<ed-effects as ro,ust and a""ro"riate s"ecification for this stud3 than the
rando0 effects. /he 4reusch-8odfre3J7ooldridge test for serial correlation ta,le +# indicates the a,sence of
autocorrelation in the 0odel. /his 0eans that the error ter0s are uncorrelated. Finall3) the 4reusch-!agan test
for heteros2edasticit3 ta,le +# shows that ho0oscedasticit3 e<ists. /his i0"lies that R&A
i)t
and e
i-
are
ho0oscedastic.

4.3 Regression results
/he regression 0odel result under fi<ed effects F:#) rando0 effects R:# and ordinar3 least sAuares &5S#
esti0ates are "resented in ta,le %. /he 99@ statistical significance le6el F-statistics under each esti0ation
techniAue shows that all the coefficients in the 0odel are different than Cero. /his 6alidates the regression 0odel
in eAuation +. /he R-sAuare 6alues re6eal that +*@) 6%@ and 67@ of 6ariations in the de"endent 6aria,le can ,e
e<"lained ,3 the e<ogenous 6aria,les under the F:) R: and &5S esti0ations. ;i6idend "a3out is significant
under F: and R:) ,ut it is not significant in influencing "erfor0ance under &5S. /he stud3 uses the F: 0odel
as the reference "oint for the anal3sis since the ?aus0an test shown in ta,le + su""orts this 0odel.
4ased on the F: 0odel fro0 ta,le %) ;i6idend "a3out is negati6el3 related to "erfor0ance at the 9(@
le6el of significance. /his 0eans that di6idend "a3out ad6ersel3 i0"acts on the financial "erfor0ance 0easured
,3 return on assets# of Auoted 0anufacturing fir0s in 8hana. As a fir0 "a3s 0ore di6idends relati6e to earnings)
its "erfor0ance attenuates. Intuiti6el3) fir0s with low di6idend "a3out e<"erience high return on assets. Such
fir0s ha6e access to high retained earnings which the3 can use as a source of finance to fund "rofita,le net
"resent 6alue ca"ital in6est0ent "ro-ects. ?igh di6idend "a3out 0anufacturing fir0s in 8hana end u" with low
retained earnings for financing ca"ital "ro-ects. Such fir0s 0a3 lac2 the financial ca"a,ilit3 to raise funds
internall3 and 0a3 rel3 on de,t financing to fund ca"ital "ro-ects. It is therefore not sur"rising that the
0anufacturing fir0s ha6e high de"endence on de,t financing see ta,le 1 under descri"ti6e statistics#. /he
,urden of "a3ing high interest rates on de,t) ,esides ha6ing to honour "rinci"al re"a30ents on the de,t
cul0inate in ad6ersel3 affecting the financial "erfor0ance of such fir0s. /he finding is congruent with the
results of A0idu) 2**7# in ter0s of the i0"act of di6idend "a3out on return on assets. It also su""orts the
findings ,3 8ill et al., 2*1*# and Farsio et al., 2**%#. ?owe6er) it disaffir0s the findings of A0idu and A,or)
2**6#) Ag3ei and Darfo-Eiado0) 2*11a#) Gwuig,e et al., 2*12# and Adu-4oan3ah et al., 2*1+#.
In res"ect of the control 6aria,les) fir0 siCe is negati6el3 related to "erfor0ance. 4ut this is not
significant in influencing 0anufacturing fir0sB return on assets. 5e6erage is 9(@ significant) and i0"acts on
fir0 "erfor0ance negati6el3. /his i0"lies that high de,t usage results in low financial "erfor0ance for the listed
0anufacturing fir0s in 8hana. Sales growth is 99@ statisticall3 significant and influences return on assets
"ositi6el3. /herefore) increasing sales is fa6oura,l3 associated with increasing "erfor0ance. ?ence)
0anufacturing fir0s desiring to increase return on assets should desire to "ut in "lace 0easures to ste0 growth
in re6enue.

*. +onc%usion
/his stud3 ascertained the i0"act of di6idend "a3out on the financial "erfor0ance of Auoted 0anufacturing
fir0s in 8hana. Financial state0ent data for the stud3 were o,tained fro0 8S: Fact 4oo2 and Annual Re"orts
8hana fro0 2**% to 2*11 financial 3ears. /he !anel data regression results were anal3sed within the fra0ewor2
of the fi<ed effects 0odel after carr3ing out ?aus0an s"ecification test. /he descri"ti6e statistics ha6e shown
that the a6erage di6idend "a3out was +2.9+@ while the res"ecti6e 0ean "erfor0ance return on assets# and
le6erage were 1.*$@ and ($.7@ during the stud3 "eriod. /he regression results ha6e also re6ealed that di6idend
"a3out significantl3 ,ut negati6el3 i0"acts on listed 0anufacturing fir0sB financial "erfor0ance. For the control
6aria,les) siCe and le6erage in6ersel3 related to "erfor0ance whiles sales growth "ositi6el3 correlated with
"erfor0ance. 7ith the e<ce"tion of siCe) all the control 6aria,les were found to ,e statisticall3 significant.
Intuiti6el3) listed 0anufacturing fir0s interested in accentuating their return on assets 0a3 ha6e to rationaliCe
the Auantu0 of di6idend "a3out. /his will hel" the0 accu0ulate high retained earnings to ,uttress in6est0ent in
"ositi6e net "resent 6alue "ro-ects which will fuel sales growth and there,3 lessen their de"endence on
e<"ensi6e de,t finance.

)eferences
Adu-4oan3ah) :.) A3enti0i) /. ;.) and &sei-Eaw) F. 2*1+#) O;eter0inants of di6idend "a3out "olic3 of so0e
selected 0anufacturing fir0s listed on the 8hana Stoc2 :<changeP) Researc !ournal of "inance and
#ccounting, 'ol. %(#) "". %9-6*.
Ag3ei) S.1. and Darfo-Eiado0) :. 2*11a#) O;i6idend !olic3 and 4an2 !erfor0ance in 8hanaP) $nternational
!ournal of %conomics and "inance) 'ol. +%#) "". 2*2-2*7.
A0idu) D. and A,or) J. 2**6#) O;eter0inants of the ;i6idend !a3out Ratio in 8hanaP) Te !ournal of Ris&
"inance, 'ol. 72#) "". 1+6-1%(.
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline#
'ol.() No.1() 2*1%

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