INFLUENCE OF DIVIDEND PER SHARE ON MARKET SHARE PRICES OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

Firms quoted on the Nairobi Securities Exchange usually declare their dividends and shareholders on the firm’s share register as at a given cut-off date become eligible to receive a dividend once it is paid out. Once a dividend is declared, the stock prices commence trading cum-dividend until the dividend payment is made to shareholders. Shares trading cum dividend tend to sell at higher prices as they are expected to factor the proposed dividend component. It therefore goes without saying that there is still a gap to explain on the effect the earnings per share and dividends per share bears on the on the stock market price movements at Nairobi Securities Exchange. The aim of the study was to establish how dividend per share influence share prices of firms at Nairobi securities exchange. This study was guided by Signalling theory and descriptive research design. Target population were 61 firms at Nairobi Securities Exchange. The study utilized secondary data. Data analysis was carried out using descriptive and regression analysis. The R squared was .452 indicated that 45.2% of market share prices was explained by dividend per Share. The dividend per Share influenced market share prices (β=0.567 and p <0.05). The study concludes that the dividend per Share influenced the market share prices. The study concludes that there is a positive relationship between dividend per share as well as earning per share and share prices. An increase in dividend per share, is associated with enhanced share prices. The study recommends that policy makers should incorporate the role of dividend per share in assessing the share returns of firms. As such, policies that help improve the earnings and dividends of firms should be encouraged to enhance share prices for listed firms as well as for other organizations. The study recommends that firms should focus on improving their earnings and dividends in as this will translate to a positive share price. JEL: G10; G11