Dividend Policy and Shareholder Wealth of Listed Financial Service Companies in Sri Lanka

Abstract

Introduction: Dividend policy is a key topic in corporate finance, traditionally linked to firm valuation and shareholder wealth. This study examines how Dividend Per Share (DPS), Dividend Payout Ratio (DPR), Dividend Yield (DY), and Return on Equity (ROE) influence Earnings Per Share (EPS). Focusing on Sri Lanka's financial sector from 2014–2023, it explores whether disciplined dividend policies enhance profitability per share amid economic challenges.

Methodology: The research uses secondary data from eight listed financial institutions, encompassing both banking and non-banking entities. Key variables (DPS, DPR, DY, ROE, and EPS) were analyzed using multiple regression. Hypotheses tested include the positive effects of DPS, DPR, DY, and ROE on EPS, with descriptive statistics and data integrity checks conducted to support the analysis.

Findings: Results reveal significant positive links between dividend policy variables, ROE, and EPS. Firms with robust dividend practices and efficient equity utilization exhibit stronger EPS. This suggests that dividends serve as signals of financial health, reflecting governance quality and resource efficiency, while supporting overall profitability.

Conclusion: The study highlights a significant relationship between dividends and EPS. Stable dividends may indicate strong fundamentals and foster market confidence, particularly in emerging markets like Sri Lanka. Managers, investors, and policymakers can use these insights to align dividend strategies with long-term profitability goals. Future research is encouraged to explore causality and broader contextual applications.