FACTORS INFLUENCING DIVIDEND PAYOUT DECISION OF FINANCIAL AND NON-FINANCIAL COMPANIES LISTED ON NAIROBI SECURITIES EXCHANGE

Samuel Thuo Gakumo,Dr C Nanjala

doi:10.47672/ajf.116

Abstract

Purpose: The purpose of this study was to examine the factors influencing dividend payout decision of financial and non-financial companies listed on Nairobi securities exchange.Methodology: The study conducted a census on 33 financial and non-financial firms listed on the NSE consistently since 2003 to 2012.Panel data was analyzed using random effects Tobit and random affects probit models. The findings indicated that four variables; financial leverage, business risk, profitability and Earnings per share significantly influenced the amount of dividend paid.Results: The findings indicated that four variables; financial leverage, business risk, profitability and Earnings per share significantly influenced the amount of dividend paid. Based on the findings, the study concluded that EPS, financial leverage and business risk play a key role in making the decision to pay or not to pay dividends. Earnings per share influences the decision to pay positively while both financial leverage and business risk influences the decision to pay dividends negatively.Unique contribution to theory, practice and policy: The study also recommends that managers may use the study findings when making the dividend payout policies since they will be given useful information regarding which factors they may consider when determining the dividend payouts

Highlights

Background of the StudyOne of the vital components of corporate policy is examining dividend payout decisions
The findings indicated that four variables; financial leverage, business risk, profitability and Earnings per share significantly influenced the amount of dividend paid
The financial firms had a mean amount of the log of dividend payout of 14.58394 with a standard deviation of 8.40397 which indicated a large variability in the amount of dividend paid over time

Summary

Introduction

One of the vital components of corporate policy is examining dividend payout decisions. The dividend policy of a company determines the division of earnings between payments to stockholders and reinvestments in the firm. Retained earnings are one of the most significant sources of funds for financing corporate growth. The latter makes it eventually possible to get more dividends. Firms face the dilemma of sharing dividend to stockholders and retaining their earnings with a the aim of reinvesting it back into the business to enhance further growth. The decision of any firm regarding how much earnings they could pay out as a dividend and how much they could retain is the concern of dividend payout decisions. The decision of any firm regarding how much earnings they could pay out as a dividend and how much they could retain is the concern of dividend payout decisions. (Lease et al, 2000)

Methods

Results

Conclusion