An empirical test of applicability of constant dividend model by companies listed at the Nairobi Stock Exchange
Abstract
This research paper tests the applicability of constant dividend model by companies listed
at the Nairobi stock exchange. Data was collected from annual reports and share price
schedules obtained from Nairobi stock exchange and Capital market Authority for a
population of 20 companies that paid dividends consistently from 2002 to 2008.
The data was then analyzed by re-computing the dividends that should have been paid if
the dividend constant model was applied. This recomputed figure was later compared to
the dividend as paid out by the companies thought the years of study. Paired sample t-test
statistic was also performed to determine whether there is a significant difference
between the two dividend figures.
The findings of the research established that the dividend model was not employed by the
companies listed at the Nairobi stock exchange. Most firms instead adopted stable and
predictable policy where a specific amount of dividend per share each year was paid
periodically. In some years there was a slight adjustment of the dividend paid after an
increase in earnings, but only by a sustainable amount. The study shows that the
relationship between the stock market prices and the dividend paid from the constant
dividend model is uneven from one year to another and where there was a relationship it
was insignificant. Though a share would be highly priced, a high dividend per share was
not always declared.
Citation
Kimathi,2009Sponsorhip
University of NairobiPublisher
School of Business
Description
MBA - Thesis