Effect Of Corporate Governance On The Dividend Payout Of Manufacturing Firms Listed At The Nairobi Securities Exchange

Abstract

The outcome hypothesis gives a suggestion that dividend payout is an output of governance quality. In organizations with poor administration, managers who are self-seekers have the ability of retaining a lot of the cash within the organization, thus there is a high probability of them using that cash for their own personal profits at the peril of the shareholders. Contrary, the argument made by substitution hypothesis is that organizations with poor administration make higher payments of dividends to substitute for the weak administration by the managers. This research set to determine how corporate governance influences dividend payout of manufacturing and allied firms that are listed at the NSE. All 9 firms in this category formed population of this work. Independent variables in this research were corporate governance operationalized as the size of the board members, independence of the team and number of board committees. Control variables were profitability as given by return on equity, firm size given by natural log of total assets, liquidity represented by current ratio and debt financing given by the ratio of total debt to total assets in a year. The response variable was dividend payout given by the ratio of DPS to EPS. A five year period, January 2014 to December 2018, was studied through gathering of secondary data. Descriptive research design method was employed while multiple linear regressions model was applied in analysis of the association between the variables. The data was analyzed by use of SPSS version 22. An R-Square value of 0.925 was produced from the study results which meant that a large percentage, 92.5%, of dividend payout of manufacturing and allied firms that are listed at the NSE are attributable to the seven predictor variables as 7.5% of disparity of dividend payout was related to variables that were not part of this study. Findings of ANOVA highlight how F was important at the 5% level, showing p=0.000. Therefore, this case showed that the model was appropriate in explaining the correlations between the differing variables. In addition, it was revealed that board independence and firm size showed a positive and statistically substantial influence on dividend payout while debt financing had a negative and statistically significant influence on dividend payout. Board size, board committees, profitability and liquidity produced insignificant values for this research work. This research recommends that policy makers should develop policies aimed at making boards more independent, because this has a statistically substantial influence on dividend payout among manufacturing and allied firms listed at the NSE.