Impact of Dividend Decisions on Financial Performance of Listed Financial Sector Companies in Sri Lanka

  • Sudarshi Nawarathne University of Sri Jayewardenepura
  • Niluka Anuradha University of Sri Jayewardenepura
Keywords: Dividend policy, financial performance, Dividend Per Share, Dividend Payout, Return on Equity


Sri Lankan economy faced extremely challenging conditions during the period of 2015-2019 where the GDP growth remained below average whilst financial sector performance also had weakened raising concerns. Hence, this study revolves around investigating the effects of dividend decisions on the financial performance of listed companies in the financial sector comprising banks, finance, and insurance companies during the period of 2015-2019. Based on the literature review, Dividend Per Share and Dividend Payout were determined as the indicators for the dividend decisions whilst Return on Equity and Return on Assets were used as the indicators for the financial performance. Control variables of leverage, Firm Size, and Firm Growth Rate were also used for the panel regression analysis where 20 listed companies have been selected as the sample. Correlation analysis found a weak correlation between dividend decisions indicators and financial performance indicators while panel regression analysis revealed that only Return on Assets has a significant impact from dividend decision indicators of Dividend Per Share and Dividend Payout.

The study recommends managers of finance companies adopt a more consistent dividend policy whilst suggesting the separation of dividend type and its impact on financial performance for future studies.


Download data is not yet available.


Abdella, A., Manual, V., & Kannan, G. (2016). A Study on the Determinants of Dividend Policies of Commercial Banks in Saudi Arabia. Imperial Journal of Interdisciplinary Research, 2(9), 1064-1073.

Adesola, W., & Okwong, A. (2009). An Empirical Study of Dividend Policy of Quoted Companies in Nigeria. Global Journal of Social Sciences, 8(1), 85-101.

Agyei, S. K., & Marfo-Yiadom, E. (2011). Dividend Policy and Bank Performance in Ghana . International Journal of Economics and Finance, 3(4), 202-207.

Ajanthan, A. (2013). The Relationship between Dividend Payout and Firm Profitability: A Study o f Listed Hotels and Restaurant Companies in Sri Lanka. International Journal of Scientific and Research Publications, 3(6), 1-6.

Ali, M. (2010). Effect of Dividend on Stock Price in Emerging Stock Market: A Study on the Listed Private Commercial Banks in DSE. International Journal of Economics and Finance, 2(4), 52-64.

Al-Kuwari, D. (2009). Determinants of the Dividend Policy in Emerging Stock Exchanges: The Case of GCC Countries . Global Economy & Finance Journal, 2(2), 38-63.

Al-Malkawi, H. (2007). Determinants of Corporate Dividend Policy in Jordan: An Application of the Tobit model. Journal of Economic and Administrative Sciences, 23, 44-70.

Anike, E. A. (2014). The Impact of Dividend Policy and Earnings on Stock Prices of Nigeria banks. Nsukka, Enugu State.: Department of Banking and Finance, Faculty of Business Administration, University of Nigeria.

Azhagaiah, R., & Priya, N. S. (2008). The Impact of Dividend Policy on Shareholders’ Wealth. International Research Journal of Finance and Economics, 20, 180-187.

Baker, H. K., Veit, E. T., & Powell, G. E. (2005). Factors Influencing Dividend Policy Decisions of NASDAQ Firms. Financial Review, 36(3), 19-37.

Banerjee, A. (2018). Dividend Policy as a Corporate Communication and its Impact on Firm Value Evidences from listed companies in Qatar Stock Exchange. Financial Markets, Institutions and Risks, 2(4), 29-38.

Booth, L., & Zhou., J. (2017). Dividend policy: A Selective Review of Results from Around the World. Global Finance Journal, 34, 1-15.

CBSL. (2020, December 20). Financial Sector. Retrieved from Central Bank of Sri Lanka:

CSE. (2020, Aug 24). Colombo Stock Exchange. Retrieved from Colombo Stock Exchange:

Cyril, U. M., Emeka, E. C., & Cheluchi, I. F. (2020). Effect of Dividend Policy on Financial Performance of Consumer Goods Manufacturing Firms in Nigeria. Science Journal of Business and Management, 8(1), 7-15.

Emeni, F. K., & Ogbulu, O. M. (2015). The Effect of Dividend Policy on the Market Value of Firms in the Financial Services Sector in Nigeria. Archives of Business Research, 3(4), 15-29.

Funmilola, Y. O., Adeniyi, A. A., & Abiodun, O. S. (2018). Dividend Policy and Banks’ Profitability in Nigeria. Nile Journal of Business and Economics, 10, 52-68.

Gordon, M. J. (1963). Optimal Investment and Financing Policy. The Journal of Finance, 18(2), 264-272.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.

Lintner, J. (1956). Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes. The American Economic Review, 46(2), 97-113.

Magni, C. A. (2007). Relevance or Irrelevance of Retention for Dividend Policy Irrelevance. Applied Economics Research Bulletin.

Modigliani, F., & Miller, M. H. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), 411-433.

Narang, M. (2018). Dividend Policy and Firm Performance: A study of Listed Firms on National Stock Exchange. International Journal of Advanced Educational Research, 3(1), 286-289.

Rahman, A. (2018). Effect of Dividend Policy on Firm’s Performance: A Case Study of Cement Sector of Pakistan. SEISENSE Journal of Management, 1(5), 6-15.

Roman, N. A. (2019). The Effect of Dividend Policy on the Market Value of the Jordanian Commercial and Islamic Banks Listed on the Amman Stock Exchange. Modern Applied Science, 13(8), 41-47.

Sekaran, U., & Bougie, R. (2010). Research Methods for Business- A Skill Building Approach (5th ed.). United Kingdom: John Wiley & Sons.

Velnampy, T., Nimalthasan, P., & Kalaiarasi, K. (2014). Dividend Policy and Firm Performance: Evidence from the Manufacturing Companies Listed on the Colombo Stock Exchange. Global Journal of Management and Business Research: A Administration and Management, 14(6), 63-68.

Walter, J. E. (1963). Dividend Policy: Its Influence on the Value of Enterprise. The Journal of Finance, 18(2), 280-291.

Yee, T. C. (2017). Dividend Pay-Out Policy and Firm Performance. Journal of Arts & Social Sciences, 1(1), 45-52.

Zhou, P., & Ruland, W. (2006). Dividend Payout and Future Earnings Growth. Financial Analysis Journal, 62(3), 58-69.

How to Cite
Nawarathne, S., & Anuradha, N. (2022). Impact of Dividend Decisions on Financial Performance of Listed Financial Sector Companies in Sri Lanka . INTERNATIONAL JOURNAL OF ECONOMICS, BUSINESS AND HUMAN BEHAVIOUR, 3(1). Retrieved from
Original Research Article