The Relationship Between Dividend Policy and Financial Performance of JSE Listed Companies

Abstract

Dividend policy (DP) is vital in corporate finance and influences firm performance (FP) and investor perceptions. Although, extensively studied in developed markets, limited evidence exists in emerging markets, like Johannesburg Stock Exchange (JSE) listed firms. The study investigates the relationship between DP and FP in 45 JSE-listed companies from 2013 to 2022, unravelling the effects of dividend yield (DY) and dividend payout ratio (DPR) on accounting-based measures, return on assets (ROA) and return on equity (ROE), as well as a market-based measure, Tobin's Q (QR). Pearson correlation, and ordinary least squares analyses were performed, controlling for firm size, leverage, and liquidity. Results show insignificant associations between DY, DPR, and ROE. DPR is positively associated with ROA, showing that firms with higher payout ratios utilize assets more efficiently. QR and DPR are positively correlated, and DY is negatively correlated, suggesting investors favour consistent dividends over higher yields due to perceived limited growth. Liquidity positively contributes to QR, highlighting the importance of cash availability for dividends and investments. Findings assist managers and investors in understanding the effects of DP on profitability and value, while assisting regulators overseeing emerging markets. The study adds evidence from developing economies, using accounting and market-based performance measures.