Effect of Dividend Policy on Share Price Performance: A Case of Listed Insurance Companies at the Nairobi Securities Exchange, Kenya

Abstract

The purpose of this study was to determine the effect of dividends policy on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE). This study was guided by the following objectives: to determine the effect of dividend payout on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE), to examine the effect of dividend yield on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE), to analyze the effect of earnings per share on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE) and to determine the effect of inflation on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE). This study was underpinned by two theories namely; Modigliani and Miller, and Gordon's Model. This study adopted a combination of descriptive design and historical research design. The target population was six insurance companies listed at the Nairobi Securities Exchange namely; Jubilee holdings ltd, Pan Africa Insurance holdings, Kenya Re-Insurance Corporation limited, Liberty Kenya Holdings, British American Investment company ltd and CIC Insurance groups. Secondary data was collected from the companies’ past financial reports for ten year period between 2006-2015. Panel data was evaluated and analyzed using stata. Dynamic regression analysis was used to establish the relationship between dividend policy on share price of the listed insurance companies. This study established that dividend payout, dividend yield, earnings per share and inflation are jointly significant in predicting the value of share price. Therefore the study recommended that insurance firms should consider their dividend policy accurately since they have a great power on influencing share price, because they affect share price by making stocks prices move either up or down depending on dividends announced by management hence management should be prudently responsive in declaring dividends. Further, the study recommended that management of insurance firms should strive to declare higher dividends to spur share price upwards. The findings of this study benefits insurance firms and regulators like CMA, IRA and NSE in decision making. Further studies to be conducted regarding dividend policy on share price with expanded time frame on all listed companies at NSE.