Assessing the effect of dividend decisions on financial performance: A study of firms listed on the Dar es Salaam Stock Exchange (DSE), Tanzania

Abstract

The goal of investing in shares is to generate capital gains or dividend income. The dividend policy of the business determines how much is distributed to investors. This study's goal was to investigate the connection between the financial performance of 28 listed companies on Tanzania's Dar es Salaam Stock Exchange and dividend decisions. A number of theories, including signalling theory and the Modigliani-Miller dividend irrelevance hypothesis, were used. The study adopted a quantitative method, analysing panel data from twenty-eight institutions spanning 2016 to 2024. It employed a panel regression model along with correlation analysis to investigate how various determinants influence firms’ financial performance. The 28 financial companies listed on the DSE as of December 31, 2024, were the study's target population. All businesses that were actively trading between 2015 and 2024 were examined. During the study period, both dividend payout ratio (t = -0.25, p > 0.05) and dividend yield (t = -1.52, p > 0.05) had a negative and statistically insignificant effect on dividend payouts. These findings indicated a negative relationship between dividend payout ratios and dividend yield and financial performance represented by ROA among Tanzanian firms. The estimated coefficient for dividend yield is -0.018520DP, suggesting a negative relationship. However, with a t-statistic of -0.249740 and a p-value of 0.8921, the result is not statistically significant at the 0.05 level. Therefore, we fail to reject the null hypothesis, concluding that the dividend payout ratio does not have a significant impact on firm earnings in Tanzania. The estimated model shows a dividend yield coefficient of -0.928870, indicating an inverse relationship between dividend yield (DY) and firm financial performance, measured by ROA. This implies that as dividend yield increases, firms' return on assets tends to decrease. However, the t-statistic of -1.517780 and a p-value of 0.1389 suggest that this relationship is not statistically significant at the 5% level. As a result, the null hypothesis (H₀₂) was rejected, meaning there was insufficient evidence to support a significant link between dividend yield and ROA in Tanzanian firms during the study period. In conclusion, the study finds that dividend-related decisions, specifically the pay-out ratio and dividend yield, do not significantly improve earnings performance among Tanzanian firms. As such, companies may benefit more from focusing on strategies that support profitability and sustainable development rather than emphasizing dividend distributions. While dividends can signal confidence to investors, firms should carefully balance shareholder returns with the need to retain earnings for future growth.