The Effect of Dividend Policy on the Share Price of Manufacturing Firms Listed on the Nairobi Securities Exchange

Abstract

Dividend policy is a widely researched concept in corporate finance. Various researchers have conducted studies to understand the connection between dividend policy and share price for firms in various industries. The objective of the study was to examine the relationship between dividend policy and share price for manufacturing companies listed at the Nairobi Securities Exchange. Descriptive research design was used for the study. The population consisted all manufacturing firms listed on the Nairobi securities exchange as at end of year 2016 and data for the companies for the period ranging from 2008 and 2016 was collected using a data collection form from secondary sources of data and analysed using SPSS. Data collected obtained was analysed using simple linear regression and correlation analysis. The study determined that there exists a positive but insignificant relationship between the dividend pay-out ratio of a manufacturing organization and its share price. This therefore implies that dividend policies that facilitate payment of dividends by firms cause a rise in share price. The study also concluded that there exists a positive insignificant relationship between profitability and share price and a negative insignificant relationship between leverage and share price of a manufacturing firm. Finally, the study recommended that similar studies should be carried out using additional moderating variables and over a longer period.