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The impact of taxes on dividend policy of Banks in Bangladesh


Md. Tofael Hossain Majumder, Md. Kashedul Wahab Tuhin, Shuvabrata Saha

Globalization, liberalization and privatization together with rapid strides made by information technology, have brought intense competition in the business arena. Therefore, today’s finance manager have to take critical and financial decisions which will lead the business to survive in the long run. Dividend policy is the one essential factor for finance manager that maximizes the company’s stock price which leads to maximize shareholder’s wealth and ultimately ensures more economic growth. A Company’s dividend policy is affected by the several factors including tax. The present study is to explore the impact of taxes on dividend policy of banking sector in Bangladesh and in particular to examine the relationship between taxes and dividend policy. The data obtained from the annual reports of 14 banks listed in Dhaka Stock Exchange (DSE) over a period of five years from 2007-2011 is used in this study. Some statistical techniques such as Pearson correlation, simple regression analysis and ANOVA test is used in this study. The investigation results show that there is a significant positive correlation exists between taxes and dividend policy of the sample banks and also suggest that tax is an important variable in the formation of dividend policy of the sample banks. This is supported by the hypothesis, which showed significant impact of taxes on dividend policy.

Keywords: Taxes, dividend policy, Banks.

JEL Classification: G21, G32, G35.