Abstract:
One of the most controversial issues in the field of finance is the behavior of the
dividend policy, which is still given considerable attention in developing
economies. There are limited research studies investigating the associations
between dividend policies and financial performance, particularly in developing
nations. Thus, the purpose of this paper is to investigate the impact of dividend
policy on the firm performance of Sri Lankan publicly listed companies. The
population of interest for this study consists of 289 companies registered on the
Colombo Stock Exchange, and 100 companies were selected at random. The
dependent variable is firm performance, which is measured by return on assets
and return on equity, and the independent variable is dividend policy, which is
measured by dividend payout ratio and dividend yield. The data are collected
from the annual reports of selected companies for the period from 2017 to 2022,
which are available on the Colombo Stock Exchange and the company website.
The results of Hausman's model specification test concluded that the fixed effects
model is most appropriate for testing the formulated hypothesis. The regression
outcomes indicate a positive relationship between dividend policy and firm
performance, but dividend yield has an insignificant impact on return on assets.
The conclusion of the study is that dividend policy explains a significant portion
of a company's performance, indicating that dividend policy has a statistically
significant effect on a company's performance. The results of this research will
assist decision-makers, prospective investors, academics, econometricians, and
other interested parties in making decisions regarding the managerial
implications of the economy and corporate sector.
