Effect of working capital management on the dividend payout of firms listed at the Nairobi securities exchange

Abstract

The art of balancing profitability and firm liquidity mostly determine the failure or success of a firm by how well it manages its disposable resources and how efficient a firm is with regards to managing operations of the firm. When a firm has an over investment in working capital it results to too much of the firm finances being committed thereby necessitating a firm to fund its operations using external borrowing that is costly while on the contrast under investment in working capital result to lower returns and slowed growth. With regards to the aforementioned, WCM may either acts a deterrent or a trigger to dividend payout and by using it as a study variable will aid in assisting to know the optimal financial decisions and practices of liquidity management. “The aim of this study was to ascertain the effect of WCM on dividend payout of firms quoted at the NSE. The population for the study was all the 63 companies quoted at the NSE. The independent variables for the study were WCM measured using current ratio, leverage represented by debt ratio, profitability represented by return on equity and firm size as represented by the natural logarithm of total assets. Dividend payout was the dependent variable and was represented by dividend per share dividend by earnings per share. Secondary data was acquired over a five-year time frame (January 2015 to December 2019) annually. Research design for this study was descriptive crosssectional design while multiple linear regression was applied in determining the relationship between the variables. SPPS software was employed in the analysis of data. From the analysis an R-square value of 0.126 was produced which in other words mean that 12.6% of the changes in the dividend payout of listed firms at the NSE can be described by the independent variables studied while the other 87.4% in the changes in dividend payout is affiliated to other variables that outside the scope of this study. It was further found out that independent variables of this study weakly correlated with the dividend payout (R=0.355).” ANOVA outcomes revealed that the F statistic was significant at 5% level with a p<0.05. Henceforth, the model was appropriate in explanation of the association between the chosen variables. The findings also showed that profitability and firm size generated positive and statistically significant values. WCM and leverage generated positive but statistically insignificant values for this study. This study recommends that listed firms should enhance their profitability and their asset levels as this has a significant positive effect on dividend payout of listed firms. The study also recommends the need for future studies to focus on other factors that influence dividend payout among listed firms.