Effect of Dividend Policy on the Financial Performance of the Companies Listed at the Nairobi Securities Exchange

Abstract

As a company earns profits, the earning may be utilized to reward its investors in dividends or retain it for reinvesting. The management may also apportion the earning to both dividend and retention. In taking any of the above course of action, maximization of shareholder wealth is the principle guide. Dividend policy decision is thus one of the most important financial decision. Dividend policy is dependent on lots of factors such as type of industry, trends of profits, taxation policy and liquidity. The study objective of the study was to determine the effect of dividend policy on the financial performance of entities listed at the NSE. The study covered a five-year period i.e. 2013-2017. The population of interest consisted the 65 listed entities at the Nairobi securities exchange in Kenya as at December 2017. A representative sample of 20 entities was used. The study was conducted using secondary data from the audited financial statements of the listed companies. The data collected was organized in a systematic manner that facilitated analysis using SPSS. The data was analyzed on the using the mean and the F test statistic computed at 5% significance level. To test for the strength of the model and the effect of dividend policy on the financial performance of the companies listed at the Nairobi Securities Exchange, the study conducted an Analysis of Variance (ANOVA). The F statistic was 2.823 which is significant, similarly the p-value was 0.043 which is less than 0.005 implying overall significance of the model. The study imply that dividend policy had a positive effect on the financial performance of the companies listed at the Nairobi securities exchange. The study thus recommend that companies should develop appropriate dividend policies since they affect the financial performance. Additionally, dividends signal investors and the market of the performance of companies.