The effect of ownership structure on dividend payout of firms listed in the Nairobi securities exchange
Abstract
This study set to determine the effect of ownership structure on dividend payout of firms listed in
the Nairobi Security Exchange. The objective of the study was to examine the relationship
between determinants of dividend payout ratios from the context of a developing country. The
study looked at the issue from a developing country perspective by focusing specifically on firms
listed on the Nairobi Securities Exchange (NSE). The study used a descriptive research design
approach and the target populations of the study were all the 62 companies listed at the Nairobi
Securities Exchange, under the main segment. The study used secondary data sources available
at the companies’ financial statements at the NSE or Capital Market Authority offices. This
study was conducted with the primary aim of establishing the effect of ownership structure on
firms’ dividend policy. To achieve the above objectives, a regression analysis was conducted
whereby changes in firms’ ROE were regressed against the three explanatory variables;
ownership structure, Size and Leverage. Ownership for a period the period (2012-2013). Data on
changes ROE (Y) for the study firms’ was obtained from the NSE; corresponding data for Size
and leverage respectively (X1, X2) was also obtained from the same source. The two sets of data
were then subjected to a regression analysis. The study found ownership structure of firms’ (X1,
X2) influenced a dividend payout especially smaller firms that were owned by directors and their
families. Two major conclusions were drawn from the findings of this study. The results
indicated that the firms’ ownership structure does not significantly influence dividend policy. It
also concluded that other factors other than ownership structure were responsible for changes in
dividend policy of NSE listed firms. The main limitation was that the amount of information
collected was enormous. Therefore, the study recommends that further research be done to
establish: the effect of other forms of ownership structures on firms’ dividend policy; and why
ownership structure exhibited high dividend payout for companies that are owned by board
members and their relatives. The researcher had to discriminate among them through coding and
deduction which greatly reduces the amount of data that can eventually be included in the final
report. This study can be of importance to the to the management of the firms, the study will be
important in assisting the management in their pursuit to increase profits of their companies
through finding strategies of managing ownership structure.