Advances in Economics and Business Management (AEBM)

Print ISSN: 2394-1545; Online ISSN: 2394-1553; Volume 1, Number 1; November, 2014 pp. 27 - 33
Krishi Sanskriti Publications
http://www.krishisanskriti.org/aebm.html

Impact of Dividend Payout on Corporate

Profitability: Evident from Colombo
Stock Exchange
AR. Fathima Thafani1, M.A. Mohamed Abdullah2
1, 2

Department of Accountancy and Finance

Faculty of Management and Commerce
South Eastern University Of Sri Lanka
Oluvil, Sri Lanka
thafanirasheed@yahoo.com
abdullah.ansar88@gmail.com

Abstract: Several theories and models have been documented on

the relevance and irrelevance of dividend policy. Hundreds of
authors continue to come up with various conclusions with
regard to dividend policy from their empirical studies. This
research attempts to study the impact of dividend payout on
corporate profitability in the Manufacturing Companies listed on
Colombo Stock Exchange in Sri Lanka. For this purpose, the
data were extracted from the annual reports of the selected
companies during the period from 2007 2011. Regression model
is used to study and estimate the relationship between dividend
payout and corporate profitability. The study also employed a
subsample in order to arrive at a profound conclusion with
regard to the impact of dividend policy on corporate profitability.
The results of the study revealed that there was a significant
relationship between dividend payout and corporate profitability
in terms of return on assets, return on equity and earnings per
share. A positive significant relation is found between dividend
payout and return on assets and return on equity for the whole
sample while significant negative relationship is found between
dividend payout and earnings per share as far as the dividend
paying sample is concerned.
Keywords: Dividend Payout Ratio, Return on Assets, Return on
Equity, Earnings per Share, CSE

1.

INTRODUCTION

Dividend decision is the practice that management follows in

making dividend payout decisions or in other words, the size
and pattern of cash distributions over time to shareholders
(Lease et al., 2000).
Being the one of the primary concerns in corporate
finance, dividend decision has drawn momentous attention of
the researchers. For more than a half a century, the dividend
policy remains as an unsettled yet puzzling topic in the finance
literature. Notwithstanding,several theories and models have
been developed regarding the dividend policy, the corporate
dividend policy is still a unsolved and controversial concernin
the corporate finance arena thus still open for debate. Black

(1976)stated that The harder we look at the dividend picture,

the more it seems like a puzzle, with pieces that just dont fit
together. Even after three decades, the situation remains
much more similar today.
Aconsiderable number of studies have been carried out to
find out the likelyconsequence of dividend decision in
developed markets. Not only in developed countries but also
in developing countries, the importance of dividend decision is
highly recognized and good number of researchers in the
developing countries has devoted themselves in order to study
the impact of dividend decision on corporate profitability.
But regrettably, there areonly a few studies that have been
conducted to examine the impact of dividend decisions on
corporate profitability in Sri Lanka.Consequently, this
research attempts to reveal the relationship between dividend
payout and corporate profitability in Sri Lanka.
1.1. Research Objectives
The general objective of this research was to study the
impact of dividend payout on corporate profitabilityin the
listed manufacturing firms in Sri Lanka. The research is also
guided by the following specific research objectives.
1.

2.
2.

To find out the impact of dividend payout and corporate

profitabilityin the manufacturing sector firms listed on
Colombo Stock Exchange (CSE).
To assess the extent of the impactdividend payout and
corporate profitability.
LITERATURE REVIEW

A number of financial researchers who analyzed the

Dividend Policy empirically expressed different views about
the relations between dividend policy and corporate
profitability. Asquith and Mullins (1986) found that dividend

28

AR. Fathima Thafani, MA. Mohamed Abdullah

initiations contain favorable information. Ambarish, John and

Williams (1987) stated that dividend announcements can
convey information about the firm's future cash flows
generated by existing assets, or about new investment
opportunities. Numerous studieshave found evidence that
valuable information is signaled through dividend adjustments
whereas Grullon, Michaely and Swaminathan (2002); Sharma
(2001); Amidu(2007); and several others contradicted the
principle implication of dividend signaling model.
For instance, more than two decades ago, Healy and
Palepu (1988) attempted to measure the subsequent earnings
performance of firms following dividend initiation and
dividend omissions. They found that firms which initiate
dividends experience higher growth in earnings in that year
and the two subsequent years than similar firms from the same
industry. They also found that the earnings changes following
the dividend initiation or omission are positively correlated
suggesting that the market perceived a more favorable signal
for those firms that ultimately experienced more favorable
earnings changes.
Similarly, Carroll (1995) using quarterly data of 854 firms
over the 1975-1984 periods found a significant positive
relationship between earnings forecast revisions and dividend
changes. More specifically, his results suggested that dividend
increases were followed by an increase in future earnings and
dividend decreases were followed by a decline in future
earnings.
On the other hand, the research by Benartzi, Michaely,
and Thaler (1997)using a sample of 1025 firms listed on
NYSE and AMEX during the period 1979 to 1991, suggested
that the earnings growth rates of firms that increase dividends
do not increase subsequently. But, firms those decrease
dividends, experience significant increases in earnings growth
rates in the following two years after the dividend decrease.
The evidence and the results contradicted with the dividend
signaling models.
But Nissim and Ziv (2001) found a positive association
between current dividend changes and future earnings changes
considering a particular model of earnings expectations. They
measured profitability in terms of either future earnings or
future abnormal earnings. Where, Abnormal earnings are
defined as the difference between total earnings and normal
earnings, and normal earnings are defined as the required
return to owners based on the cost and level of invested equity
capital. They argued that previous studies which were
unsuccessful to show association between dividends and
earnings are because of the use of wrong model by the
researchers to control for the expected changes in earnings.
Specifically, they reported that when using a regression
analysis that controls for a particular (linear) form of mean
reversion in earnings, dividend changes are positively
correlated with future earnings changes.

On the contrary, Sharma (2001) contradicted the principal

implication of the signaling hypothesis that increase in
dividend rate is positively related to future firm prosperity. He
observed that firms report improving profitability measured by
return on asset, ratio of free cash flow to capital expenditures
proxy for cash flow and other performance measures leading
up to dividend initiation, but subsequently there is significant
and sustained reversal across all these measures. His results
suggested that profitability of firms decrease after dividend
initiation which is contradicted to the signaling model that
predicts improvements in firm profitability.
The work of Arnott and Asness (2003) challenged the
perception that a higher payout ratio results in low future
growth. They based their study on America Stock Market and
found that higher aggregate-dividend-payout ratios were
related with higher future earnings growth.
Lie (2005)argued that firms that increase payouts have
excess financial flexibility and exhibit positive concurrent
income shocks and decreases in income volatility, but there is
limited evidence of subsequent performance improvements in
his article Financial flexibility, performance, and the
corporate payout choice. He stated that firms that increase
payouts have lower past volatility of operating income than
other firms. This can be explained by the fact that managers
increase the firms payout when they believe that the
probability of sustaining the current level of income is high.
Firms that decrease dividends on the other hand, have higher
past volatility than other firms, and this volatility is on the rise.
In the same year, Grullanet al. (2005), in their study on the
listed firms on the NYSE and AMEX during the period of
1963 and 1997 showed that dividend changes are negatively
correlated with future changes in profitability measured by
return on assets. They revealed that dividends changes are
very poor indicators of both earnings and profitability levels
hence concluded that there is no evidence supporting the idea
that dividend increases signal better prospects for firm
profitability.
James and Stephen (2006)evaluated the performance of
distressed firms simultaneously sending the dividend and debt
signal using data obtained from the COMPUSTAT annual
files. Their results were consistent with dividend payments
sending a relative, ambiguous signal. Their results suggested
that firms that increase or maintain their dividends show
superior financial performance in terms of return on assets to
those reducing or eliminating dividends. They further stated
that firms maintaining their dividend outperform the firms
increasing their dividend.
Amidu (2007) on the influence of dividend policy on firm
performance for a sample of firms listed on Ghana Stock
Exchange (GSE) over the eight year period spanning from
1997 to 2004revealed that dividend payout and corporate
profitability are negatively correlated. His results indicated a
statistically significant and negative relation between

Advances in Economics and Business Management (AEBM)

Print ISSN: 2394-1545; Online ISSN: 2394-1553; Volume 1, Number 1; November, 2014

Impact of Dividend Payout on Corporate Profitability: Evident from Colombo Stock Exchange
profitability and dividend payout. The study found a negative
association between firms profitability measured by return on
assets and return on equity with dividend payout.

29

: There is a positive relationship between dividend payout

and earnings per share.
3.3. Empirical Model

Timothy and Peter (2012) sought to establish the

relationship between dividend payout and firm performance
among listed firms on the Nairobi Securities Exchange during
the period of 2002 - 2010. They employed regression analysis
to establish the relationship between dividend payout and firm
performance. Their findings indicated that dividend payout
was a major factor affecting firm profitability measured by net
profit after tax. Their relationship was also strong and positive.
This therefore showed that dividend policy was relevant.

Considering the dependent, independent and control

variables employed in the study, the researcher modeled the
study as follows:
Where the function of corporate profitability is given by;
}

= {
,
,
The regression model that is to be used for the whole
sample will be operationalized as follows;

In this regard this research tries to unfold the relationship

between dividend policy and corporate performance for the
listed manufacturing firms in Sri Lanka.
3.

METHODOLOGY

3.1 Sample and Data Collection

The model will be operationalized as follows for the

subsample;

A sample of twenty one (21) manufacturing companies

listed on Colombo Stock Exchange (CSE), including both
dividend paying and non-paying companies, during the period
from 2007 to 2011 are selected for the analysis based on the
following criteria: (1) Companies, which were quoted at CSE
before the year 2007and (2) Companies, for which, all relevant
data are available.
The selected sample further divided into a subsample.
Subsampledenotes the dividend paying companies.
This study uses quantitative data for the analysis. All the
necessary data that are used in this analysis are collected from
secondary sources for a period five years from 2007 to 2011
for all twenty one companies. Annual reports of the selected
manufacturing companies listed on Colombo Stock Exchange
(CSE) were used to extract the data.
The collected secondary data isanalyzed using Statistical
Package for Social Sciences (SPSS); a computer based
statistical analysis software. Correlation analysis, simple
regression analysis and multiple regression analysis is used in
order to ascertain the impact of dividend payout on corporate
profitability.

3.2. Hypotheses
In order to identify the impact of dividend payout and
corporate profitability in of Sri Lanka, the following
alternative hypotheses are developed.
: There is a positive relationship between dividend payout
and return on asset.

=
=
=

+
+

+
+

+
+

+
+

Where for both type of models, the subscript tdenote year;

= Earnings before interest & tax divided by total assetsin
year t,
= Profit after tax divided by shareholders equity year t,
= Profit after tax divided by number of shares
outstanding in year t,
= Dividend per share divided by earnings per share
in year t,
= Natural logarithm of total assetsin year t,
= Difference between the current year sale and
previous year sales divided by previous year sales in year t
= Long term debt divided by total shareholders fundin
year t,
= The error term in year t,
and , , , are
the
regression
= Constant,
coefficient for Payout, Size, Growth and Leverage
respectively.
4.

DATA ANALYSIS

4.1 Correlation analysis

Correlation analysis is used to check for the
multicollinearity among the dependent and control variables
employed in the study.

: There is a positive relationship between dividend payout

and return on equity.

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30

AR. Fathima Thafani, MA. Mohamed Abdullah

Table 1. Correlation Analysis
Variables
Payout
Size
Growth
Lev

Payout
1.000
0.037
-0.111
-0.060

Size

Growth

Lev

1.000
-0.017
-0.235

1.000
0.235

1.000

Table 1 exhibits the bivariate correlation coefficient of the

explanatory variables included in the study. As a rule of
thumb, a bivariate correlation coefficient for two explanatory
variables greater than 0.8 indicates that multicollinearity is a
problem in the regression model.
As per the correlation matrix, the bivariate correlation
coefficient of all explanatory variables are less than 0.3 while
the highest being reported between growth and leverage is at
0.235. Accordingly the results show that multicollinearity does
not exist in the study model.
4.2 Regression Analysis and Hypothesis Testing
This research employs regression analysis to measure the
effect of dividend payout on the corporate profitability of the
manufacturing sector firms listed on Colombo Stock
Exchange. Initially, simple regression analysis is employed to
measure the effect of dividend payout on the corporate
profitability. The relations between the dependent variable and
the independent variable of the study estimated using the
Ordinary Least Square method is reported in the Table 2.
As per the results reported in Table 2, dividend payout
ratio has a positive relationship with the return on assets and is
statistically significant at 95% confidence level ( <0.05).
Dividend payout ratio also has reported a positive relation
with the return on equity and statistically significant ( <0.05).
An insignificant positive relationship between dividend payout
ratio and earnings per share is found at 5% significance level
( >0.05). Accordingly, the H1 and H2 are accepted and H3 is
rejected.
Table 2. Results of Simple Regression Model

coefficient

Model
1
0.038

Model
2
0.080

Model
3
0.238

t-statistic

2.013

1.996

0.216

-value

0.047

0.049

0.830

0.038

0.037

0.000

Adjusted R

0.029

0.028

-0.009

SE of regression

0.133

0.284

7.780

F-statistic

4.053

3.983

0.047

Probability
(F-statistic)

0.047

0.049

0.830

Notes: The table comprises of three models that represents the

dependent variable of the study. Model 1, Model 2, and Model 3
denote the dependent variables ROA, ROE and EPS respectively.
Return on Assets (ROA) is operating profit divided by total assets,
Return on Equity (ROE) is profit after tax divided by shareholders
fund, and finally Earnings per Share (EPS) is profit attributable to the
ordinary shareholders divided by the number of shares are the
dependent variable of the study while Dividend payout ratio
(PAYOUT) defined as the dividend per share divided by earnings per
share is the independent variable.
*significance is at the 0.05 level.

In order to identify the impact of dividend payout ratio on

the corporate profitability in a more deliberate manner, the
study employs a subsample which consists of only dividend
paying companies from the whole sampleand the effect of
dividend payout is estimated while controlling for few firm
specific factors along with the explanatory variable dividend
payout in the regression model for dividend paying
companies.Multiple regression analysis is used to measure the
effect of dividend payout on corporate profitability after
controlling for firm specific factors using Ordinary Least
Square method.
Table 3. Regression Model Results - Dependent Variable:
ROA

tcoefficient statistic
PAYOUT
SIZE
GROWTH
LEV
CONSTANT
R2
AdjustedR2
SE of
regression
F- statistic
Prob. (Fstatistic)

0.009
-0.011
0.065
-0.807
0.405

0.435
-2.594
1.806
-2.324
4.528

value
0.665
0.012
0.076
0.015
0.000

Std.
Erro
r
0.020
0.004
0.036
0.347
0.089
0.153
0.100
0.128
2.925
0.027

Notes: Return on Assets (ROA) defined as operating profit divided

by total assets is the dependent variable. The dividend payout ratio
(PAYOUT) is dividend per share divided by earnings per share is the
independent variable. The control variables are SIZE defines as the
natural logarithm of the total assets, GROWTH is the annual sale
growth and LEV is long term debt divided by shareholders fund.
*significance is at the 0.05 level.

Table 3 shows the regression results of the ROA and the

PAYOUT along with control variables.
According to Table 3, the value of F-statistic is 2.925 for
the regression model and is significant at 5% significance
level( < 0.05), ratifying the overall validity of the model. The
value of R-squared is at 0.153 and implies that the model
consisting of payout, size, growth and leverage accounts only
for 15.3% of the variability of the return on assets of the
dividend paying companies [1] of the manufacturing sector
companies listed on Colombo Stock Exchange. An

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Impact of Dividend Payout on Corporate Profitability: Evident from Colombo Stock Exchange
insignificant relation between payout ratio and return on asset
is found after controlling for size, growth and leverage for the
dividend paying companies. The impact of dividend policy on
corporate profitability measured in terms of return on equity of
the dividend paying companies of the manufacturing sector is
reported in Table 4.

Table 5. Regression Model Results - Dependent Variable:

EPS

PAYOUT

PAYOUT

t
coefficient statistic value
-2.299
-2.065 0.043

SIZE

Table 4. Regression Model Results - Dependent Variable:

ROE
tcoefficient statistic
0.013
0.540

31

GROWTH

-0.259

Std.
Error
4.945

-1.052

0.297

1.113

4.907

2.457

0.017

0.246

- 59.206

-3.069

0.003

1.997

CONSTANT

17.398

3.518

0.001

19.289

value
0.591

Std.
Error
0.024

LEV
2

0.214

SIZE

-0.014

-2.534

0.014

0.005

AdjustedR2

0.165

GROWTH

0.085

1.951

0.055

0.044

SE of regression

7.144

LEV

-0.861

-2.045

0.045

0.421

F- statistic

4.418

CONSTANT

0.451

4.178

0.000

0.108

Prob. (F-statistic)

0.003

R2

0.147

AdjustedR2
SE of
regression
F- statistic
Prob. (Fstatistic)

0.094
0.155
2.793
0.033

Notes: Return on Equity (ROE) defined as profit after tax divided by

shareholders fund is the dependent variable. The dividend payout
ratio (PAYOUT) is dividend per share divided by Earnings per share
is the independent variable. The control variables are SIZE defines as
the natural logarithm of the total assets, GROWTH is the annual sale
growth and LEV is long term debt divided by shareholders fund.
*significance is at the 0.05 level.
[1].

Criteria for the classification:

Companies that had paid dividend at least for three years during the
research period of 2007 2011 have been categorized as dividend
paying companies.

According to the results reported in Table 4, the value of

Rsquared is 0.147 and it implies that the model consisting of
payout, size, growth and leverage accounts only for 14.7
percent of the variability of the return on equity of the
dividend paying companies of the manufacturing sector
companies listed on Colombo Stock Exchange. The F-statistic
is 2.793 and is significant at 95% confidence level ( <0.05),
confirming the overall validity of the model. The impact of
dividend policy on return on equity after controlling for size,
growth and leverage is positive but insignificant at 5% level
( >0.05).
The effect on return on asset, size and leverage has a
negative impact on the return on equity while the growth has
positive impact. Size has a negative relation with return on
equity and is significant at 5% significance level ( < 0.05). A
significant positive relation is reported with growth whereas
the negative relation with leverage is insignificant ( > 0.05).
Table 5 shows the results of impact of dividend payout on
earnings per share of the dividend paying companies of the
manufacturing sector.

Notes: Earnings per share (EPS) defined as Profit after tax divided by
shareholders fund is the dependent variable. The dividend payout
ratio (PAYOUT) is dividend per share divided by Earnings per share
is the independent variable. The control variables are SIZE defines as
the natural logarithm of the total assets, GROWTH is the annual sale
growth and LEV is long term debt divided by shareholders fund.
*significance is at the 0.05 level.

Referring to Table 5, Rsquared is 0.165 and it implies that

the model consisting of payout, size, growth and leverage
accounts only for 16.5% of the variability of the earnings per
share of the dividend paying companies of the manufacturing
sector companies listed on Colombo Stock Exchange. The Fstatistic is 4.418 and is significant at 95% confidence level ( <
0.05), confirming the overall soundness of the model. The
effect of dividend policy on earnings per share after
controlling for size, growth and leverage is negative and is
significant at 5% level ( >0.05). This implies that an increase
in dividend payout will lead to a significant decrease in the
earnings per share of the firm. The results suggest that firms
earnings will decline with addition of debt capital in the
capital structure whereas the earnings will increase when there
are growth prospect for manufacturing sector firms listed in
Sri Lanka.
According to the results reported, H1 and H2 cannot be
accepted in the case of dividend paying companies in the
manufacturing sector whereas a significant negative
relationship is found between the dividend payout and
earnings per share rejecting the null hypothesis.
5.

DISCUSSION

According to the regression results reported, corporate

profitability as measured by ROA, ROE and EPS found to
have significant and insignificant relation with different
classification of selected sample.

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32

AR. Fathima Thafani, MA. Mohamed Abdullah

Table 6. Results Summary of Hypothesis Testing

Profitab
ilitymea
sur-ed
by

Hypothes
-ized
direction

Result
directi
-on

ROA

ROE

EPS

Sample
Type

Whole
sample
Whole
sample
Sub
sample

Signific
-ance
Signific
-ant
Signific
-ant
Signific
-ant

Note: Whole sample denotes the all twenty one manufacturing

companies selected for the analysis while subsample denotes the
dividend paying companies among the twenty one companies.
* Significant at 5% significance level

Table 6 shows the summary of hypothesis testing which

indicates a significant relationship between dividend policy
and the corporate profitability with different classification of
samples.
Return on asset and return on equity are found to have
significant relations for the whole sample while insignificant
relations is reported for subsample after controlling for size,
growth and leverage.
Earnings per share reported statistically insignificant
relations for the whole sample whereas, a statistically
significant negative relation is found for the subsample after
controlling for SIZEdefines as the natural logarithm of the
total assets, GROWTH is the annual sale growth and LEV is
long term debt divided by shareholders fund.
A statistically significant and positive relationship is
found between return on assets, return on equity and dividend
payout ratio for the whole sample. The results let the null
hypothesis to be rejected hence concluding that there is a
positive relationship between return on assets, return on equity
and dividend payout ratio. These results are consistent with
Timothy and Peter (2012);Zanjidhar and Seifi (2012); James
and Stephen (2006); and Nissim and Ziv (2001).However, the
results were contradicted to the findings of Grullan, Michaely
and Swaminathan (2002); Sharma (2001); Lie (2005); and
Amidu (2007).
Findings indicate that profitability increases with the
dividend increase of listed manufacturing firms in Sri Lanka.
The results suggest that firms that increase the dividend
payout experience a rise in the level of profitability whereas
firms that reduce the payout for the shareholders face with a
decline in the level of profitability. The findings further
emphasize that dividend policy was a major factor affecting
the firms profitability measured by ROA and ROE of
manufacturing firm listed at Colombo Stock Exchange.

Accordingly, it can be concluded that dividend policy signals

firms profitability and that mangers should devote adequate
time and effort in designing and implementing a dividend
policy that enhances the profitability of the firm and hence
firm value.
In the case of dividend paying companies no relationship
is found between profitability and the dividend payout after
controlling for size, growth and leverage. Growth had no
meaningful relation with profitability whereas size and
leverage had a negative correlation with profitability
suggesting that larger the firm size lower and higher the
leverage in the capital structure lower will be the profitability
and vice versa. The negative impact of size and leverage on
profitability is consistent with Amidu (2007).
A statistical significant negative relation is found between
earnings per share and the dividend payout after controlling
for size, growth and leverage for the dividend paying listed
manufacturing companies. The result rejected the null
hypothesis hence found a negative relationship between
dividend payout ratio and the earnings per share and is
consistent with Benartzi, Michael and Thaler (1997) who
stated that firms that increase dividends do not increase
subsequently. Though, the results were contradicted with the
findings of Healy and Palepu (1988); Carroll (1995); Arnott
and Asness (2003); Howatt et al. (2009); and Lee (2010).
The resultimplies that earnings decrease as dividend
payout increases suggesting that firms that increase the
dividend payout experience a drop in the level of earnings
whereas firms that reduce the payout for the shareholders
experience an increase in the level of earnings.
The negative association of earnings with dividend payout
may be due to the reason that when a corporation pays out its
earnings rather than retaining them within the entity, it faces
with the lack of funds for investing in the profitable projects.
Thus the earnings will be lower in the future from new
projects. If the company decided to fund these investments
through a loan, still the earnings that are attributable to
shareholders will be lower since there is an obligation towards
the debt holders. This can be further justified by the positive
association of growth with the earnings.
Size reported a negative but insignificant relation with
earnings per share whereas the impact of growth and leverage
were statistically significant on earnings per share. According
to the results growth seems to have a positive impact implying
that higher the growth prospect a firm has, higher will be the
earnings while leverage has a negative relation with earnings
suggesting that higher the debt capital a firms employs, lower
will be the earnings and vice versa. The findings stress that
dividend policy was a key factor affecting the firms earnings
of dividend paying manufacturing firm listed at Colombo
Stock Exchange. Therefore, mangers of the companies must
be aware in deciding either to distribute the earnings among

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Impact of Dividend Payout on Corporate Profitability: Evident from Colombo Stock Exchange
the shareholders or retaining them for the future investment
while considering the growth and leverage of the firm.
In the case of combined sample of dividend paying and
non-paying manufacturing companies listed at Colombo Stock
Exchange, positive but insignificant relation is found between
dividend payout and the earnings. Thus, in the case of whole
sample no relationship could be found between dividend
payout and the earnings per share.
6.

of the companies are omitted from the study due to the lack of
data availability and extraordinary circumstances attached
with the companies. Accordingly, further studies could be
carried out overcoming above mentioned limitations on
manufacturing companies listed on CSE.
8.

REFERENCE

[1] Ambarish, R., John, K. and Williams, J. (1987) Efficient

Signaling with Dividends and Investments Journal of
Finance,Vol. 42, pp. 321 43.

CONCLUSION

The main trust of this research is to find out the

relationship between dividend payout and corporate
profitability of the manufacturing firms listed on Colombo
Stock Exchange. Based on the results, it could be found that
the impact of dividend payout on corporate profitability
measured by return on assets and return on equity is positive
and statistically significant for the whole sample while
positive but insignificant relation is found for the dividend
paying companies. The impact of dividend payout on
profitability in terms of earnings per share was negative and
significant after controlling for size, growth and leverage for
the dividend paying companies whereas an insignificant
relation was reported for the whole sample.
Profitability in terms of return on assets and return on
equity of the manufacturing sector firms listed on Colombo
Stock Exchange is affected by both the company size and the
leverage suggesting that bigger the firm size and higher the
debt capital in the capital structure, lower will be the
profitability for listed manufacturing firms. The firm size
reported no relation with earnings per share while the growth
and leverage found to have impact on earnings. The findings
suggested that firms earnings will decline with the addition of
debt capital in the capital structure whereas the earnings will
increase when there are growth prospects for the firms.
Leverage reported a negative impact on the market price per
share whereas size and growth have no relations with market
price for manufacturing sector firms listed in Sri Lanka.
The implication of the study is that dividend payout of
manufacturing firms convey certain signal about the
profitability of the firm.Since the ultimate objective of a
corporate is to maximize shareholders wealth hence the firm
value, mangers of corporates should design and implement a
dividend policy so as to enhance the corporate profitability
while considering the shareholders wealth.

7.

33

LIMITATION AND FURTHER RESEARCH

An important limitation of this study is the period for

which the data is sampled. First the sample horizon is pretty
short, compared to samples in the prior literature. Second, as
far as the manufacturing companies are considered only 65
percent of the companies are selected for the sample. The rest

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Advances in Economics and Business Management (AEBM)

Print ISSN: 2394-1545; Online ISSN: 2394-1553; Volume 1, Number 1; November, 2014