The relationship between profits and dividend payout of commercial banks in Kenya
Abstract
This study analyzed the relationship between profits and dividend payout of commercial
banks in Kenya. The research objective was to investigate the nature of relationship
between dividend payout and profits of commercial banks in Kenya. The result assists in
the understanding of how profits influence commercial banks’ dividend payout.
Commercial banks can then make use of such information to implement a dividend
payout policy which satisfies their shareholders expectation. Two control variables i.e.
liquidity position (measured by cash and balances with CBK) and inflation rate (at year
end) were also studied to find out the impact they have on the relationship established
between profits and dividend payout.
The research was based on the commercial banks consistently listed at the NSE for the
five-year period from 2008 to 2012 inclusive. Data on listed commercial banks is readily
available and regarded credible for use. For the analysis of data from the ten commercial
banks, simple and multiple linear regressions were used to determine the relationship
between dividend payout and profits and also the two control variables, liquidity position
and inflation rate.
The key finding of the study is that there is a strong positive relationship between profits
and dividend payout. However the study found out that the strength of the relationship
reduced when the two control variables were incorporated in the study. The conclusion
from the study was that profits and dividend payout of commercial banks are positively
correlated and that a strong positive relationship exists between the two variables. This
study is consistent with empirical findings of Abdi (2010) who concluded that dividend
payout positively correlate with future profits of companies though the relationship is low.
Publisher
University of Nairobi