An investigation into the factors leading to the decline in distribution of cash dividends in quoted manufacturing firms in Kenya
Musa, Grace Akinyi
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The author has divided the project into five chapters. Chapter One consisted of the statement of the problem as revealed by Fama and French (2001) who recorded a sharp decline in the distribution of cash dividends in firms in the United States. For example from 1973 to 1978 the proportion of firms that paid cash dividends rose by 13.7%, however, from 1978 to 2004 there was a sharp decline of 45.7% and the trend has persisted. In Kenya most of the manufacturing firms have recorded a downward trend in their payments of cash dividends examples include Mumias sugar, Sameer Africa, Crown Berger others such as Eveready East Africa had not paid cash dividends between 1994 to 2005, Investors were investing more on firms that paid stock dividends than cash dividends. The concern was therefore the reason for mass movement of the shareholders and fall in the prices of the shares. The general objective of the study was to investigate the factors leading to the decline in the distribution of cash dividends in quoted manufacturing firms in Kenya. The specific objectives included; evaluation of factors that lead to the decline in the distribution of cash dividends in sampled quoted manufacturing firms in Kenya, assessment of how these factors lead to the decline in the distribution of cash dividends and suggest ways and means of overcoming the decline the trend. Chapter Two stated theories of dividend policies. The author had concentrated on the bird in hand theory which stated that a bird in hand was worth two in the bush; which considered dividend decisions to be irrelevant Chapter Three consisted of the location of the study which was conducted in the capital city of Nairobi and its environs because the selected firms recorded a decline in the distribution of cash dividends and also because all the head offices of quoted companies are situated in Nairobi. Secondary data was utilized for the purpose of the study. All pertinent data was obtained from the secretariat of Nairobi Stock Exchange. The research design applied was descriptive presented by the use of statistical tools such as frequencies, tables and pie charts. Required calculations was made from the available data. Stock prices of the shares were obtained from the financial statements of quoted firms at the N. S.E, primary data was collected through the issue of questionnaires to respective respondents which included both closed and open ended questions. A total of 100 questionnaires were issued and the response rate was 71. Statistical tool of Spearman's correlation coefficient was used which represented an achievement of + 0.71 which indicated a perfectly positively coefficient of correlation and was relied upon. The researcher used Proportionate Stratified Random Sampling. A sample total of 100 were selected comprising of 60 shareholders, 20 employees, 10 financial and Accounts managers and 10 Investment consultants. The technique provided an equal chance of selection for each element of the population (Orodho, 2004). Chapter Four and Five discussed the findings, analysis, recommendations and areas of further research. The author established that quoted manufacturing firms in Kenya should maintain a stable dividend distribution policy on which there will be unanimity on preference, appreciate that a dividend announcement has a definite effect on share prices, convince the shareholders to accept the fact that a firm must grow even as it pays them cash dividends and advice management to be prudent in their management of dividend distribution policy as it has information content which is decoded by varying stakeholders to give differing meaning.