The Relationship Between Dividend Payout And The Value Of Companies Listed At The Nairobi Securities Exchange

Abstract

The objective of this study was to find out the correlation between dividend payout and the value of companies quoted at the Nairobi Securities Exchange. The dependent variable was the value of the firms, the independent variable was the dividend payout and the control variables were profitability, capital structure and size of the firm This study reviewed Dividend Irrelevant Model, Dividend Relevance model, Bird in the Hand Theory, Information signaling effect theory, Tax Preference Theory and Clientele Effect Theory. The study population was all the 65 listed companies at the Nairobi Securities Exchange as at 31st December 2016 and the study sampled 16 firms from almost all the sectors apart from insurance and telecommunications. The study period was five years from 2012 to 2016. Regression and correlation models were used. Strata software was used to analyze data. The study found out that companies that pay high dividends are highly valued in the market than firms that do not or pay low dividends. The study also found out that dividend payout, profitability and size of the firm had a positive relationship with the value of the firm. The study also found out that dividend payout had the strongest positive correlation followed by profitability and the size of the firm had a very small positive correlation with the value of the firm. On the other hand an increase in the capital structure resulted to a negative correlation with the value of the firm. The study found that an increase in the amount of debt in capital structure resulted to a decrease in the value of the firm. The results of the study supported the dividend relevance theory which states that investors are influenced by the dividend policy of a firm