Effect of Monetary Policy on Dividend Payout of Firms Listed at the Nairobi Securities Exchange

Abstract

The main objective of this study was to determine to what extent the amount paid out as dividend by firms listed at the Nairobi securities exchange affected by changes in monetary policy variables. The research design was longitudinal census survey. The population of study comprised all listed firms at the Nairobi Securities Exchange. Secondary data about monetary policy and dividend payout was obtained from Central Bank of Kenya, published financial statements from local dailies and Nairobi Securities Exchange respectively. In this research annual data for the period 2006 to 2016 was used. The data was analyzed using regression on the dividend paid as the dependent variable against independent variables which were Repo rate, CBR and Treasury-bill rate. The correlation between Repo rate, CBR, and Treasury-bill and dividend pay-out was, -0.498, -0.022, and +0.787 respectively. The most significant correlation was noted to be between Treasury-bill and dividend payout, with an index of 0.787. In this regard, this pair of correlation was significant at 0.05 level of significance. To determine the influence of monetary policy on dividend payout, a regression analysis was carried out. The coefficient of determination was used to bring out the extent to which each of the three independent variables jointly explained dividend payout among the firms. The coefficient of determination represented by the adjusted R2 was 0.477 representing 47.7%. This implies that the monetary policy dimensions (91-Day Treasury bill, CBR, and Repo rates) jointly explained up to 47.7% of dividend payout. This therefore means that 52.3% of dividend payout was explained by variables outside the model. From ANOVA analysis, the regression model had a fit with the data (F= 4.045, P<0.01). This indicates that monetary policy dimensions in the model had a significant influence on dividend payout. The study revealed that if Repo, CBR, and 91-Day Treasury-bill rates were each held constant, the dividend payout would increase by 0.081 representing 8.1%. However, a unit change in each of the three monetary policy dimensions: 91-Day Treasury bill, CBR, and Repo rates, would lead to change in dividend payout by factors of 0.772, -0.114, and 0.049 respectively. The study determined that Treasury bill is rate significantly related to dividend payout of firms listed at the NSE. The study affirmed strong positive association between the 91-Day Treasury-bill rate and dividend payout of firms listed at the NSE. The study therefore concluded that monetary policy is a critical antecedent of dividend payout of firms listed at the NSE. The means that institutions policy makers should pay attention to the dynamics around each of the variables as a capital market development mechanism. The study recommends further investigations focusing on various moderating and intervening attributes factors such as firm attributes since this was not within the scope of the current study