EFFECT OF DIVIDEND ON SHARE PRICE OF LISTED COMPANIES ON THE GHANA STOCK EXCHANGE

Abstract

The study assesses the effect of dividend payout on the share price of companies listed on the Ghana Stock Exchange from 2000 to 2015. The sample size consists of five companies listed on the GSE from the Finance/Insurance industry. They include; Ghana Commercial Bank (GCB), Standard Chartered Bank, Societe Generale Bank (Ghana) Limited, Enterprise Insurance, and H. F. C. Bank. The study used mainly secondary data. The study described the trend of share prices and dividend payment of companies listed on the GSE, the effect of dividend on share price, as well as the trend of the annual average 91day Treasury bill rate (interest rate) for the market from 2000 to 2015 .The effect of dividend on share price was examined using a double log multiple regression model. The study revealed that the share prices of all the companies (GCB, HFC, EIG, SCB, and SGSSB) fluctuate year by year throughout the sixteen year period from 2000 to 2015. The share price of SCB was higher than all the other companies throughout the entire period but fluctuate each year. The average share price of the companies listed on the GSE generally fluctuates over the years between 2.93 and 9.85. The study further revealed that dividend payment among all the companies was generally not stable but fluctuates every year. However, there seems to be a rise in dividend payment along the years though not stable. Also, the study revealed that several explanatory variables were significant in explaining the variations in the share prices of companies listed on the GSE. Dividend payment significantly influences the share prices of companies listed on the GSE. Dividend payment was statistically significant at 1% significance level. It has a positive relationship with share prices. The other variables which significantly influence share prices were annual average 91day Treasury bill rate (interest rate) and retain earnings. The study also revealed that interest rate for the market has not been stable over the years. It keeps fluctuating each year. However, there has been a sharp decline in interest rate in recent times compared to the early years of 2000. It is recommended that companies listed on the Ghana Stock Exchange (GSE) should make a policy to pay dividend regularly and promptly to its shareholders in order to attract more investors to their companies so that their share prices may appreciate for them to stay competitive in the market since dividend payment leads to an increase in share prices of companies listed on the GSE. Also, companies listed on the GES that intend increasing their share prices should not retain much earnings of shareholders since retain earnings leads to a decrease in the share prices. Since the future is uncertain, investors often prefer receiving their earnings now as against the future which corroborates the bird in hand theory.