The Impact of Corporate Governance on Dividend Payout of Manufacturing Firms Listed at the Nairobi Securities Exchange

Caroline Ikunda

doi:10.11648/j.jfa.20160405.12

Abstract

This study sought to examine the impact of corporate governance on dividend payout of manufacturing firms listed at the NSE. The objectives of the study were; to determine the impact of board size, board composition, CEO tenure and managerial equity holding on dividend payout of manufacturing firms listed at NSE and finally, to establish the impact of corporate governance on dividend payout of manufacturing firms listed at NSE. The study employed a correlational research design and the population of the study comprised all manufacturing firms which were consistently listed at the Nairobi Securities Exchange from 2008-2014. Correlation and regression analysis were used to test the impact of the independent variables relating to corporate governance practices on the dependent variable (Dividend Payout). Independent one-way ANOVA test and independent t-test (one tailed) were used to determine the level of significance. The study found that board size, board composition, CEO tenure and management equity holding have a weak negative relationship with dividend payout. Further, the study found that board size has a statistical significant impact on dividend payout, while board composition, CEO tenure and managerial equity holding were found to have no statistical significant impact on the dividend payout. The empirical results from the multiple regression analysis indicated that there is a strong positive relationship between corporate governance and dividend payout. However, there was no statistical significant relationship between the two variables. Therefore, this study concludes that corporate governance has no impact on dividend payout of manufacturing firms listed at NSE.

Highlights

Corporate Governance is defined as the process and structure used to direct and manage business affairs of a company with the ultimate objective of realizing shareholder long-term value while taking into account the interest of other stakeholders
The study rejects the first hypothesis and concludes that board size has a statistical significant impact on dividend payout of manufacturing firms listed at the Nairobi Securities exchange (NSE) for the period 2008 to 2014
The study fails to reject the third hypothesis and concludes that, CEO tenure has no statistical significant impact on dividend payout of manufacturing firms listed at the NSE for the period 2008-2014

Summary

Introduction

Corporate Governance is defined as the process and structure used to direct and manage business affairs of a company with the ultimate objective of realizing shareholder long-term value while taking into account the interest of other stakeholders. Corporate Governance is acknowledged to play an important role in the management of organizations in both developed and developing countries (Achchuthan and Kajananthan, 2013). It aims at protecting the interests of shareholders and improving performance of organizations. According to Chung et al (2010), firms having weaker governance structures face more agency problems and this increases the risk to shareholders This is due to lack of proper structures, mechanisms and processes that ensure that a firm is managed and directed in a way that ensures increase in shareholder value. Corporate governance becomes an important aspect of enhancing the performance of organization by increasing management accountability

Objectives

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Results

Conclusion