The impact of dividend pay-out on investment opportunities in Ghana

Abstract

The objective of this work was to seek an answer as to whether investment opportunities in Ghana are influenced by dividend pay-outs. Secondly, it was intended also to discover agency problems between corporate insiders (that is, the board of directors, managers and employees) and outside shareholders of businesses/investment companies. This research tried to unfold the relationship between the shareholders' wealth and the dividend pay-outs and analysed whether the dividend pay-out announcements affected the wealth of the shareholders. It was also aimed at finding out the effects of dividends on the performance of businesses. The study recognised that the issue of agency conflicts and agency cost is pervasive in large publicly trading firms in Ghana due to the separation of management and control of such firms. The existence of agency costs is due to free cash-flow or managerial effect aversion, and this puts firms at a competitive disadvantage as a result of sub-optimal usage of scarce resources. The study used a panel data methodology to achieve its objectives. The population and sample included twenty-seven (27) companies registered on the Ghana Stock Exchange for the period between 2011 and 2015. Secondary statistics were used. The findings of the study showed that dividend pay-outs are positive and statistically significantly related to compensation. It also found that investment opportunities are positively and statistically significantly related to compensation. Moreover, directors' shareholding representing stock compensation was positive and statistically related to investment opportunities of firms in Ghana. The results showed that variations in compensation explain variations in dividend pay-outs and investment opportunities. Directors' shareholding, which is used as a proxy for stock compensation, was shown to motivate directors to increase firm value.