Relationship between Firm Financials and Dividend Policy of Firms Listed at Nairobi Securities Exchange, Kenya
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Date
2018
Authors
Adan, Farhiya Ali
Omagwa, Job
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Scientific and Education Research
Abstract
There is substantial evidence on inconsistencies in paying dividends by listed firms in the
Nairobi Securities Exchange have been on the upsurge since 2010. In year 2017, only two firms
managed a special dividend in addition to normal dividends. Studies have found that over a third
of listed firms at the NSE have not paid dividends since 2014. All further 15 companies have
been reducing their dividends per share. Even though this has been attributed to profit making,
reorganization of business models and a drive to expand as some of the key reasons, there has
been conflicting information annually on the reasons why, with reference to successive annual
reports since 2010 in spite of the ever changing market dynamics. The inconsistencies on market
reports and studies done have found literally that this area should be relooked with no well-
known study having been done to link firm financials to dividend payments in the recent years
most notably at the firms listed in the NSE. Consequently, this study sought to fill the
knowledge gap by assessing the relationship between firm financials and dividend policy of
listed firms at NSE, Kenya. The specific objectives of the study were: to establish the
relationship between firm size, profitability, capital base and ddebt-equity mix on dividend
policy among firms listed at NSE, Kenya. This study adopted a descriptive research design. The
study targeted 38 firms listed that paid dividends over the study period of 5 years. The study used
secondary data covered the year 2011 to 2015. The data analysis techniques involved descriptive
statistics, correlation and panel regression. Regression analysis findings indicate that firm size
and dividend policy are positively and significantly related (β=4.250821, p=0.014). The stud
further found that profitability and dividend policy are positively and significantly related (β=
2.157921, p=0.022). Capital base and dividend policy are positively but insignificantly related (β
=2.23343, p=0.068). Regression of coefficients findings indicate that debt-equity mix and
dividend policy are positively are positively and significantly related (β= 0.050463, p=0.000).
Based on the findings above, the study concluded that firm size is a critical component
explaining dividend policy of a firm. Larger firms are able to pay dividends largely due to their
strength to pay dividends. The study also concludes that profitable firms with reliable net
earnings can afford more free cas-flows and thus pay more dividends. Evidently, firm’s
profitability ratio is a significant determinant of the dividend payout policy. Firms with higher
leverage have bigger debts and interest obligations to settle hence higher chances of paying
lower dividends. Firms that rely much on debt to finance its operations pay low dividends
because they are monitored by debt-holders who lowers management capability to pay
dividends.
Description
A research article published in International Journal of Scientific and Education Research
Keywords
Firm-size, Profitability, Capital base, Debt-equity mix, Dividend policy and Nairobi Securities Exchange
Citation
International Journal of Scientific and Education Research. Vol. 2, No. 05; 2018