The Effects of Earnings on Dividend Payout of Firms Quoted at the Nairobi Securities Exchange

Abstract

This research project aim was to establish the effects of earnings on DPO for companies listed at Nairobi Securities Exchange (NSE). The objective of the study was to establish how and the extent to which company earnings, liquidity, leverage, and company size determine DPO for firms listed at the NSE. The research employed secondary data which was analyzed utilizing SPSS software version 20 and the results presented in tables. The population comprised the 64 quoted companies in the NSE as at December 2015. Out of the 64 listed firms, data was available for 43 firms. The results consistently support the potential association between the four independent variables and the dependent variable (dividend payout) for firms listed at the NSE. Earnings, leverage and company size had a positive correlation with DPO while liquidity had a negative correlation with DPO. At 5% level of significance, earnings were found to be a significant determinant of DPO while other variables of the research were not significant. The study used the F-statistic to test the overall significance of the regression model and the model was found statistically significant and suitable for this study. During the five year study timeframe, the findings indicate that a combination of all the four independent variables (company earnings, liquidity, company size and leverage) accounted for 65.8% of the variations in the dependent variable (DPO) of firms listed at the NSE. It is against this findings that this research study arrived at the conclusions that earnings had the greatest effect on dividend payout for companies quoted at the NSE and recommend among others, that companies listed at the Nairobi Securities Exchange observe and manage well their policies dealing with earnings, liquidity, leverage,and company size variables.