Abstract:
Many decades ago, dividend is one of a predominant areas discussed in the corporate world, However, a universally accepted reason to pay dividend is not yet found. Compared to the research carried out in other parts of the world a very limited number of studies are available in the Sri Lankan context. Thus, the objective of this study is to explore the impact of financial performance on dividend policy of manufacturing companies listed in the Colombo Stock Exchange (CSE), Sri Lanka. The study was predominantly guided by the quantitative methodological approach. Return on Assets (ROA) and operating cash flow (OCF) were employed to measure the financial performance while the Dividend Pay-out Ratio (DPR) was employed to measure the dividend policy. Further, the Current Ratio (CR) was used as control variable in the study. A Sample of 29 companies in the manufacturing sector was selected in the study for the analysis. The sector was selected deliberately and the sample included all eligible companies. The study relied on secondary data which were collected from audited financial statements accompanied by companies’ annual reports from 2011 to 2020. Descriptive statistics were used to analyse the behaviour of variables and panel regression model (fixed effect) was used to make a conclusion about the impact of financial performance on dividend policy of the selected sector in Sri Lanka. According to the results of regression analysis, it was found that financial performance can negatively and significantly affect dividend policy of the listed manufacturing companies in Sri Lanka.