Effect of dividend policy on financial performance of agricultural firms listed at the Nairobi securities exchange

Abstract

Dividend payment is the most crucial part in firm’s decision making as the management has to come up with the decision which will benefit both the firm and the shareholders. As such, the topic has been studied by numerous scholars but the results still remains ambiguous. The research objective is to establish the effect of dividend policy on financial performance of agricultural firms quoted at NSE. Descriptive research design and a total of seven firms which make up the Agricultural segment at NSE formed the population of the study. Secondary data was entirely adopted to carry out the study and the data covered a period of ten year for the period between 2007 and 2016. Descriptive statistics was the preferred method to carry out the analysis of the data. The results established a strong and positive correlation linking dividend payout ratio and financial performance. Further, the study found an insignificant positive correlation linking the mode of dividend payment and the agricultural firms’ financial performance. Additionally, weak inverse correlation linking financial leverage, firm size and the financial performance of the listed agricultural firms was revealed. Finally, a strong direct association was established linking asset structure and financial performance the quoted agricultural firms at the NSE. It concluded that dividend payout significantly affects agricultural firms’ financial performance. It further concluded that the financial performance of agricultural firms is significantly influenced by their assets structure. The study recommended that the agricultural firms’ managements should come up with an optimal dividend policy and invest in adequate assets to enhance profitability among these institutions.