Dividend Payout and Financial Performance of Manufacturing Firms Listed at the Nairobi Securities Exchange
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Date
2017
Authors
Muchira, Kariuki John
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
To determine the correct mix of dividend and retained earnings and how it affects profitability
has been a subject in Literature of financial management. This research came in to contribute to
the on-going debate by examining the relationship between dividend pay-out and financial
performance of manufacturing firms listed in the Nairobi Securities Exchange. The key
motivation was to establish if the findings of this study are consistent with prior empirical studies
as found in both Signaling and Bird -in-hand hypotheses of dividend policy theory. The target
population was the listed manufacturing firms in Kenya as at December 2015. All the ten listed
firms at the period were used in the study. The study used secondary data. Annual financial
reports for the period 2002-2015 were utilized as the main source of data collection for the 10
firms. Ordinary Least Squares (OLS) was used to estimate the coefficients of explanatory and
control variables. Return on Assets (ROA) serves as the dependent variable, profitability, while
Dividend Pay-out ratio proxy for dividend policy was the explanatory variable. Control variables
include firm size and leverage. The use of descriptive statistics showed that dividend payout ratio
-measured as Dividend per Share/ Earnings per Share, had an average of 37.21% and a median of
33.88%. Correlational coefficient findings results imply that the independent variables that is;
dividend payout, Firm Size, and Leverage, and the dependent variable -Return on Assets, all had
a positive relationship. From the results, there is a clear positive and significant relationship
between return on assets and dividend payout. The significance and the positive coefficient of
the variable dividend payout indicate that when a listed firm has a policy to pay dividend it
influences its level of future financial performance as measured by ROA. The study recommends
that policies and laws governing dividend payment should be reinforced and enforced to ensure
more frequent payment by firms in order to increase their market values through share price
increases.
Description
A Research Project Submitted to the department of Economic Theory in the School of Economics in Partial Fulfillment of the Requirements for the award Degree of Master of Economics (Policy and Management) of Kenyatta University