The Effect of Stock Liquidity on Dividend Payout Policy for Banks Listed at the Nairobi Securities Exchange in Kenya.

Abstract

Stock liquidity is described as the propensity of a stock to be converted to cash easily and quickly. The trading of shares is usually done at the Stock Markets. Investors value shares that have higher dividend returns. A stock that is illiquid but pays higher dividends will be sought after compared to the more liquid ones. The main aim of the study was to find out the effect of stock liquidity on dividend policies for banks listed at the Nairobi Securities Exchange between 2013 and 2017. The stock turnover rate and dividend payout ratio were used as proxies for stock liquidity and dividend payout policy respectively. The research study also used some control variables of firm leverage and firm profitability which affect the firm’s ability to pay dividends. Descriptive design method was used where data was pulled out from the CMA and NSE and was analyzed and the findings were that the stock turnover rate, the predictor variable was insignificant to the outcome variable dividend policy. The outcomes of the study support that stock liquidity cannot predict the banks’ dividend payout policy at the NSE.