Dividend Policy and Share Price Valuation of Listed Commercial Banks in Tanzania

Dividend payment signals good news to investors. Thus, it influences firm share price valuation. Over time, two contradicting theories have propounded the relevance and irrelevance of dividend policies to influence firm share price valuation. Despite the existence of the irrelevance theory, dividend payment has remained a key financial decision of corporate managers that has impacted firm’s share price valuation over time. Therefore, this study aimed at examining the effect of dividend policy on share price valuation of commercial banks in Tanzania. Specifically, the study examined the influence of four dividend policy proxies: dividend per share, dividend payout ratio, dividend yield and propensity to pay dividends on share price of commercial banks. The study used panel data extracted from annual reports of four listed commercial banks from 2011 to 2022. The study used Panel Corrected Standard Error (PCSE) regression estimator in estimating the relationship. The findings revealed that dividend per share, dividend payout ratio and propensity to pay dividends have a profound positive influence on share price of commercial banks in Tanzania. The findings showed that when management efficiently utilises profit to pay dividends, it affects positively share price of commercial banks. However, it was only found that dividend yield is significantly inversely linked with share price of commercial banks in Tanzania. This implies that an increase in dividend yield affects significantly negatively share price of commercial banks. In general, the findings support the dividend relevance theory and corporate managers are advised to maximise payment of dividends to enhance the share price valuation of commercial banks.