Vol-6 Issue-4 2020 IJARIIE-ISSN(O)-2395-4396 12261 www.ijariie.com 378 THE RELATIONSHIP BETWEEN POLICY DIVIDENDS AND FIRMS’ PERFORMANCE ON GHANA STOCK EXCHANGE Dominic Ofori Amankwah 1 , Oscar Opoku Agyemang 2 1 MBA student, Department of Accounting, University of Cape Coast 2 PhD candidate, Department of Geography and Regional Planning, University of Cape Coast ABSTRACT This study was to examine the impact of relationship between dividends policy and financial performance of listed banking and non-banking industries in Ghana. The research used secondary data obtained from the audited financial statements. To achieve this objective, data from 10 listed banks and non-banks were analysed for the period of seven years (2012-2018). E-views version 9 was used to estimate the regression results. The study revealed that dividend payout had no effect on the financial performance of listed banks and non-banking firms in Ghana. Thus amount of dividends paid does not affect the financial performance of firms but should pay dividends when they are financially strong. Also, findings of the study confirmed that dividend policy is a major factor that influence the financial performance of listed banks and non-banking firms. It was observed that dividend policy was highly significant predictor in explaining the firms’ performance (ROE). Other factors such as firm size, leverage and growth had insignificant impact on the return of equity of listed firms (banks and non- banking). Hence firms should ensure that they have good and effective strategies that will lead to increased total asset and other factors that will result to improved financial performance of banks and non-banking firms in the future. It is therefore, recommended that Banks and non-banking firms should invest in profitable assets that will yield higher returns in the future to enhance their financial performance and attract investments in the future. Moreover, the research findings revealed that there was no weighty impact of dividend payout on the financial performance and hence, investors should not rely on the amount of dividends paid to ascertain the financial stability of the firms. Keyword: Dividend payout, performance, Return on Equity, Ghana Stock Exchange INTRODUCTION Background to the Study The issue of dividend policy is one of the very essential elements in economics and business that cannot be overlooked. Dividend policy is the regulations and guidelines that a company rely upon in making decisions concerning dividend payments to shareholders (Nissim & Ziv, 2001). The dividend policy decisions of firms are the primary element of corporate policy. Dividend, which is basically the benefit of shareholders in return for their risk and investment, is determined by different factors in an organization. Basically, these factors include financing limitations, investment chances and choices, firm size, pressure from shareholders and regulatory regimes. However, the dividend payout of firms is not only the source of cash flow to the shareholders but it also offers information relating to firm’s current and future performance. Therefore, enhancing shareholders’ wealth and profit making are the major objectives of a firm (Pandey, 2005). Shareholder’s wealth is mainly influenced by growth in sales, improvement in profit margin, capital investment decisions and capital structure decisions (Azhagaiah & Priya, 2008). Firm performance in this case can be viewed as how well a firm enhances its shareholders’ wealth and the capability of a firm to generate earnings from the capital invested by shareholders. Dividend policy can affect the value of the firm and in turn, the wealth of shareholders (Baker & Powell, 2001). Dividend or profit allocation decision is one of the four decision areas in finance. Dividend decisions are important because they determine what funds flow to investors and what funds are retained by the firm for investment (Ross, Westerfield & Jaffe, 2002). More so, they provide information to stakeholders concerning the company’s performance. Firm investments determine future earnings and future potential dividends, and influence the cost of capital (Foong, Zakaria & Tan, 2007). Dividend policy is therefore, considered to be one of the most important financial decisions that corporate managers encounter (Baker & Powell, 1999). It has potential implications for share prices and hence returns to investors, the financing of internal growth and the equity base through retentions together with its gearing and leverage (Omran & Pointon, 2004). There has been