The effect of capital structure on dividends payout: the case of selected banks in South Africa

Abstract

The purpose of this study was to determine whether Banks operating in South Africa are paying dividends from changes in their capital structure. This study was motivated by prior literature which revealed that South African banks paid dividends from fair value revaluation. The multiple regression analysis was used to examine the nexus between debt-to-equity ratio, debt ratio and dividend pay-out. Data collected from audited financial statements over a period of eightyears wasanalysed using a statistical package for the social science software. The empirical findings of this research indicated that in four of the five banks under investigation, there is no statistically significant relationship between dividend pay-out and debt ratios. Similarly, no significant relationship was found between dividend pay-out and debt-to-equity ratios. The aforementioned results imply that most South African banks are not paying dividends to their shareholders by altering their capital structure. . However, in one particular instance, the study results revealed that dividend payout is positively associated with capital structure indicators. The findings of this study confirmed the position of the DividendPayout Ratio theory which states that dividend payouts should be from profits and should be paid only after the firm has invested in all possible profitable projects.