Determinants of dividend payout ratio: Analysis of microfinance companies listed in Nepal Stock Exchange (NEPSE)

Abstract

Two opposing hypotheses—dividend relevancy and dividend irrelevancy illustrate the influence of the dividend decision on a firm's value. However, this study examined the factors influencing the dividend payout ratio in Nepalese microfinance institutions. More specifically, this study investigates the impact of asset growth, financial leverage, firm size, profitability, and macroeconomic conditions on the dividend payout ratio (DPR). This research examined signaling theory through an explanatory research design. This study comprised a total of 50 microfinance institutions operating in Nepal. Nine microfinance institutions were randomly selected from a total of 50 microfinance institutions. The selection of nine microfinance institutions was based on stock price performance, comprising the three highest, three medium, and three lowest share prices in the Nepal Stock Exchange. This research utilized panel data from nine microfinance institutions over the period 2018-2023, comprising a total of 54 observations. This research employed descriptive, correlational, and multiple regression analyses. The results indicated a positive relationship between the dividend payout ratio and asset growth. In contrast, there is a negative relationship between company size and profitability with the dividend payout ratio. Financial leverage, inflation rate, and GDP growth rate exhibit a negative yet insignificant relationship with the dividend payout ratio. The results of the multiple regression analysis indicate that company size, asset growth, and profitability negatively impact the dividend payout ratio. Inflation, GDP growth, and financial leverage exert an insignificant influence on DPR. Management should utilize the findings to optimize the dividend payout ratio, thereby maximizing shareholder wealth.