The Effect of Dividend Policy on Firm Value for Firms Listed at Nairobi Securities Exchange

Abstract

Listed organization use dividend policy to choose the amount of its income it will pay out to investors, thus, influences the valuation of a firm. For firms listed NSE, one of the necessities is that they ought to have an unmistakable future dividends policy. The majority of firms recorded at the NSE pay divided as from the earnings. This study sought to determine the relationship between dividend policy and value of firms listed on the Nairobi Securities Exchange by answering the question, what is the determine the relationship between dividend policy and value of firms listed on the Nairobi Securities Exchange. The objective of the research is to determine the relationship between dividend policy and value of firms listed on the Nairobi Securities Exchange. The studies use a descriptive survey research design. The target population in this study constituted 65 companies listed on the NSE. The study used secondary data that was collected using data collection form. The study used multiple linear regression models that seek to establish the relationship between dividend policy and firm value of listed companies at NSE through regressing factors such as dividend payout ratio, return on assets, leverage, and company size. The study found that firm value of listed firms was significantly predicted by profitability of the firm .The findings also revealed that dividend payout ratio significantly predict value of the firm. The study revealed that there exist a moderate, significant and positive relationship between firm size and Firm Value. Results revealed that Debit/Equity Ratio predict a negatively and significant on firm value with proxy value. The results also indicated that firm size (Bsize) as a control variable predicts significant and positively firm value. The study concluded that company’s profitability, dividend payout and firm size has a positive significant relation with the value of the firm. The study concluded that debt has a negative but insignificant effect on firms’ value hence the conclusion that high debt levels reduce the firm’s value. the study recommends that manager of listed firms should develop effective dividend payout policies to ensure that their firms pay out dividends to enhance the value of their companies. Study recommends that the management of the companies listed at NSE should employ optimal debt levels to ensure that high debt levels do not increase agency cost, which may in turn affect firm value.