Analysis of Determinants of Dividend Payout by Agricultural Firms Listed on the Nairobi Security Exchange.
Waswa, Calistus Wekesa
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Agriculture has been a major source of the country’s food security and a stimulant to offfarm employment but agricultural production is on decline. Most firms in the agricultural sector have not lived to their expectations and have led to shareholder apathy therebycontributing to the decline of the rural economy due essentially to unstable and low dividend payout. The dividend policy is one of the most debated topics in finance literature. One of the different lines of research on this issue based on the information content of dividends, which has motivated a significant amount of theoretical and empirical research. An interesting issue, not yet explored, is the empirical evidence of determinants of dividend payout. Profitability has always been considered as a primary indicator of dividend payout ratio. There are numerous other factors other than profitability that also affect dividend decisions of an organization namely growth opportunity, Liquidity, Leverage and Firm Size. Available literature suggests that dividend payout is positively related to profits, liquidity and it has inverse relationship with Firm size, growth and Leverage. This research is an attempt to analyze the determinants of dividend payout of Kenya Agricultural sector. This thesis also focused on identifying whether various factors available as per literature influence dividend payout ratio in Agricultural sector in Kenya in existing scenario or not. Statistical techniques of correlation and regression were used to explore the relationship between key variables. Thus, the main theme of the study was to identify the various factors that influence the dividend payout policy decisions of Agricultural firms in Kenya listed on Nairobi Securities exchange. Most of the existing literature is mostly from the studies carried out in developed nations, hence the need for a study on the Kenyan domestic market. The study covered the period from 2005-2010. The research design was non-experiment and quantitative. The objective of the study was achieved by adopting panel data estimation technique using multiple regressions because it is the best method to use when dealing with micro-units in the economy. The test between Ordinary Least Square (OLS), fixed effects and random effect model was carried out. Panel data, cross-sectional time series data from financial reports in NSE libraries and CMA libraries was collected and stored in Microsoft Excel 2007, data analysis was carried out using the Statistical Package for Social Scientists (SPSS) version 17.0. The results show positive relationships between dividend payout and liquidity and profitability. The results also show negative associations between dividend payout and firm’s growth, Firm size and leverage. These results are consistent with the prediction by many authors.