Relationship between prior period dividends and financial performance of firms listed at the Nairobi stock exchange
Abstract
Dividend behavior of firms is one of the areas of finance that has aroused the interest of
financial analysts, academicians and all manner of professionals interested in finance.
Along with capital structure, dividend policy has been one of the first areas of corporate
finance to be analyzed with a rigorous model, and it has since been one of the most
thoroughly researched issues in modern finance. In spite of the interest developed and the
numerous researches undertaken, a lot remains unexplained concerning the role of
dividends.
The purpose of the study is to determine the relationship between prior period dividends
and the financial performance of firms listed at the NSE. The study has reviewed related
literature with regards to the area of study which seems to favour the argument that
dividend payment indeed leads to a better financial performance for a firm. To undertake
the study, a population of all companies listed at the NSE has been considered of which a
sample of 34 companies was selected. The variables in the study are the firms’ financial
performance (earnings per share) and the prior period dividends (dividend per share)
The study relies on secondary data collected from the companies’ websites, CMA, NSE
and ICPAK amongst other sources. The data has been analyzed using the applications of
Statistical Package for Social Scientists (SPSS) and then presented in the form of tables
and graphs.
The results of the study reveal that majority of firms enjoy a better financial performance
as indicated by their EPS after issuing dividends. As such, a relationship indeed exists
between prior period dividend payments and financial performance of a firm. However,
the study fails to take into consideration other factors that also affect the financial
performance of a firm
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University of NairobiPublisher
School of business