Effect of Dividend Policy on the Firms Performance of Firms Listed At Nairobi Securities Exchange

Author(s)

Metto Samson Kiptanui , Kinyua Helen Wairimu ,

Download Full PDF Pages: 11-25 | Views: 94 | Downloads: 35 | DOI: 10.5281/zenodo.10277069

Volume 12 - November 2023 (11)

Abstract

The dividend policy of a company plays a pivotal role in shaping dividend distribution decisions, with management guiding the allocation of profits to shareholders through dividends. These policies are globally implemented to establish standardized guidelines for specific firms, bolster credibility, and instill shareholder confidence. While both local and international studies have delved into the intricate link between dividend policies and firm performance, their outcomes have yielded inconclusive results. Nevertheless, scholars have particularly emphasized the influence of payout and reinvestment on these policies. In this context, the present study sought to investigate the impact of dividend policy on firm performance by scrutinizing entities listed on the Nairobi Securities Exchange. This research was grounded in well-established theories like Agency theory, signaling theory, and dividend irrelevance theory, while the research design seamlessly aligned with the research question and problem. Employing a descriptive research design, the study aimed to unravel the relationship between variables. The target population consisted of NSE-listed companies, totaling 63 firms across the 2018-2022 timeframe, furnishing an ample dataset for comprehensive insights. Secondary data was meticulously drawn from the NSE handbook and the PAFS, focusing on financial statements mandated by the Capital Markets Authority (CMA). Collected data underwent a rigorous process of review, classification, coding, and analysis using the user-friendly SPSS software, known for handling intricate data with ease. The presentation and interpretation of findings involved a blend of inferential and descriptive statistics. The model summary revealed an R-value of 0.755, signifying a substantial 75.5% correlation among the examined variables. The R-Square value further clarified that 57.1% of the variations in firm performance, concerning dividend policy for NSE-listed firms, could be attributed to firm size, company earnings, leverage, and firm performance itself. The remaining 42.9% of fluctuations stemmed from unaccounted factors. ANOVA results validated the model's statistical significance, with a significance value of 0.000 well below the P-Value threshold of 0.05. Utilizing unstandardized coefficients in column B to formulate the mathematical model, it was revealed that the collective impact of predictor variables on firm performance stood at 0.155. The findings also unveiled that firm size maintained a positive and noteworthy correlation with firm performance (β=0.006; p=0.036< 0.05). Further exploration highlighted that company earnings exhibited an adverse and substantial connection with Firm Performance (regressed variable) (β=-0.098; p=0.000< 0.05). Additionally, the data in section 4.7 illuminated leverage's positive and material link with firm performance, as demonstrated by (β=0.094; p=0.000< 0.05). In contrast, dividend payout showcased a positive yet statistically insignificant association with firm performance, represented by (β=0.015; p=0.076>0.05). The outcomes of this study yield a plethora of practical recommendations and policy considerations that merit in-depth exploration. To initiate, enterprises stand to gain substantial insights by engaging in a meticulous evaluation of their dividend disbursement strategies, particularly in light of the observed positive correlation between dividend payout and Firm Performance. Undertaking an intensive scrutiny of the ramifications of incremental dividend distributions could potentially pave the way for companies to fine-tune their financial performance. Further research is imperative due to the varying impacts observed in this study. Deeper exploration into the underlying mechanisms can provide a more nuanced understanding of the relationships and potential causalities involved

Keywords

Dividend Policy, Performance of Firms, Nairobi Securities Exchange

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Cite this Article:

Metto Samson Kiptanui , Effect of Dividend Policy on the Firms Performance of Firms Listed At Nairobi Securities Exchange, American Based Research Journal 11(2023):11-25 DOI: 10.5281/zenodo.10277069