The effect of dividend policy on the value of firms listed at the Nairobi Securities Exchange

Abstract

This study sought to examine effect of dividend policy on value of firms listed at NSE. The study reviewed the Modigliani and Miller dividend irrelevance model, the bird in hand theory, the signaling theory and the agency theory to explain the concepts of dividend policy and firm value. To answer the research question the study used a quantitative research design. Study population comprised of 65 firms listed at NSE as at 31/12/2015. This study used secondary data extracted from the listed firms financial statements for a period of 5 years from the 2011 – 2015. Data analysis was carried out using correlation and regression analysis using the Statistical Package for Social Sciences (SPSS) version 21. The study findings established that that dividend payout and firm size significantly and positively influences firm’s value. The study also found that the timing of payment of dividends and the mode of dividend payment positively influences value of the firm while debt ratio negatively influences the value of the firm an indication that increase in debt levels reduces the value of the firm. The study concluded that dividend policy is relevant and affects firm’s value positively such that an increase in dividends increases firm’s value and vice versa. The study recommended that manager of listed firms should develop effective dividend payout policies to ensure that their firms pay out dividends to enhance the value of their companies.