Determinants of Dividend Policy of Savings and Credit Co-operative Societies in Kenya

Abstract

Dividend policy plays a major role in the decision-making process by financial managers. The management of a firm must decide the amount of profit to be retained in the business and then up with the ratio for allocation of dividends to each shareholder. The decision on how much profit should be retained and the amount paid in form of dividends is a vital element in dividend policy. This study sought to establish the determinants of dividend policy of SACCOs in Kenya. Specifically, the study examined the influence of financial leverage, liquidity, profitability firm size, Working capital management and investments on dividend policy of SACCOs in Kenya. The study adopts a causal research design. The population targeted by the study was SACCOs in Kenya. The study used Slovin’s formula to calculate sample size 39 164 registered SACCOs in Kenya. The study collected secondary data and data was analyzed using descriptive statistics and regression analyses. The study concluded that the determinants of dividend policy of SACCOs in Kenya are liquidity, financial leverage, profitability, firm size, working capital and investment. The dividend paid by SACCOs in Kenya increases with increase in working capital, profitability and firm size. Dividend paid by SACCOs in Kenya is adversely affected by increase in liquidity, financial leverage and investment. The study recommends that SACCOs should mitigate distress caused by high rates of financial leverage by signing of covenants on debts; SACCOs should not indulge in declaring exorbitant amounts if dividends in the effort to attract more investment at the expense of liquidity position; smaller SACCOs should come up with strategies to avoid information asymmetries which may affect the dividend payment and; further research on the influence of government regulations and organizational polices on dividend payment by SACCOs in Kenya.