Effects of dividend policy on the growth of selected medium enterprises in Nairobi county, Kenya
Chibole, Noelstella S
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Medium enterprises experience poor growth because of a number of limitations arising from poor capital structure, poor liquidity (cash flow) management, undefined ownership structure, poor profitability and constrained communication and less competent staff and management among others. This state of affairs influences the dividend policy of the enterprises which in turn influence the overall growth of the medium enterprises. Therefore this study seeks to investigate the relationship between determinants of dividend policy and the growth of Medium enterprises in Kenya by answering the following research question: how does capital leverage, liquidity and ownership affect growth of medium enterprises in Kenya? The study used cross-sectional descriptive survey because of the large number of respondents that were involved. The target population was 311 drawn from medium enterprises located in Nairobi Central Business District (NCBD). The study used stratified random sampling and involved taking 20% of the target population giving a respondent base of sixty two (62) respondents. Data for the study was collected using the questionnaires and analyzed using descriptive and regression statistics with the aid of Statistical Package for Social Sciences (SPSS 21.0). Findings of the study indicated that capital structure, financial liquidity and ownership structure affect growth of medium enterprises in Kenya The results of the study also showed that medium enterprise with higher short term and long term liabilities pay lower dividends and inhibit the firm ability to attract external funds, that cash liquidity plays an important role in deciding the amount to be paid out and retained and that enterprises that have higher financial liquidity possess the capacity to pay higher dividends and that percentage of shares held by various shareholders influence dividend payout and that the total numbers of shares in the enterprise influence dividend payout and growth. The study recommends that enterprises need to avoid high leverage ratios which may results in high transaction costs resulting in a weakened position to pay higher dividends; for Small and Medium Enterprises (SME’S) to encourage institutions to invest in their enterprises as they are able to invest huge amount of resources at their disposal and for medium enterprises to maintain liquidity up to certain level in order to provide financial flexibility and protection against uncertainty.