Effect of Working Capital Management on Dividend Payout of Energy and Petroleum Firms Listed at the Nairobi Securities Exchange

Abstract

The art of balancing firm working capital and dividend payments often dictates the success or failure of a business depending on how well disposable resources are managed and on how prudent a firm is when it comes to handling operational issues. As a result of this, the majority of companies have focused a lot of their energy, time, and resources on identifying suboptimal operating levels. At these levels, investment quality is not harmed and financial resources are not being held in fixed assets for no good reason. The unfavorable effects of both overinvesting and underinvesting in working capital have encouraged research on the most effective policy for managing working capital. The main intention of this study was to examine WCM effect on dividend payout of listed energy and petroleum firms in Kenya. The trade-off theory, the Keynesian liquidity preference theory, and the free cash flow theory were adopted to anchor the study. A descriptive research design was utilized in this research. The target population was the 4 listed energy and petroleum firms in Kenya. Secondary data was gotten from the CMA and specific listed energy and petroleumfirms annual financial statements for a 10year period (2012 to 2021). Upon collection of the data, inferential as well as descriptive statistics generated included frequencies and percentages and simple and multiple linear regression respectively. The regression results produced a 0.311 R square which implies that 31.1% of the changes in dividend pay-out among listed energy and petroleum firms can be described by the six selected variables for this research. The overall model was found to be statistically significant as exhibited by a 0.043 p value that was below 0.05. The study further revealed that individually, DIO, DSO and DPO do not have a significant impact on dividend payout of energy and petroleum firms listed at the NSE (β=0.081, p=0.232); (β=0.-101, p=0.133); (β=-0.026, p=0.822). Both firm size and profitability positively affected dividend payout as shown by (β=0.261, p=0.000) and (β=0.214, p=0.000) respectively. Financial leverage exhibited a negative and significant dividend payout influence as shown by (β=-0.202, p=0.008). The research recommends management of listed energy and petroleum firms ought to focus on enhancing their asset base and their profitability as this will enhance dividend payout. The study further recommends the need to for listed energy and petroleum firms to set debt limits as high debt levels might have a negative impact on dividend payout. The research recommends the necessity for further researchers to focus on other dividend payout determinants.