The Relationship Between Firm-specific Factors and Dividend Payout for Firms Listed at the Nairobi Securities Exchange

Abstract

Organizations have different dividend payout policies unique to certain factors or conditions within and without the organization. Various studies have shown that certain factors such as firm size, profitability, liquidity and prior dividends positively influence the “dividend payout. On the other hand, factors such as liquidity, financial leverage, sales growth and business risk have a negative effect on dividend payout. The objective of this research was to examine the influence of select firm-specific factors on the dividend payout ratio decisions of companies listed on the Nairobi Securities Exchange. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavored to examine the range of magnitude and effects of the firm specific factors” on the dividend payout. The target population was all the listed firms at the Nairobi Securities Exchange. Secondary sources of data were employed. Panel data was utilized, data was collected for several units of analysis over varying time periods. The research employed inferential statistics, which included correlation analysis and panel multiple linear regression equation with the technique of estimation being Ordinary Least Squares (OLS) so as to establish the relationship of the firm specific factors and dividend payout. The findings were that the firm-specific factors do not have a statistically significant relationship with dividend payout and they cannot be utilized to significantly predict dividend payout. Further findings were that profitability, leverage, and growth neither have a statistically significant relationship nor association with dividend payout. Policy recommendations are made to the CMA and NSE, and by extension, the National Treasury, not to focus on firm-specific factors when endeavoring to formulate and enforce rules and regulations on dividend payout. Further recommendations were made to firm management and consultants not to focus on firm specific factors when trying to signal investors in order to boost firm value. Final recommendations were made to other stakeholders like investment banks, equity analysts, and individual investors not to solely analyze the firm-specific factors when trying to forecast dividends, which are a major component in calculating returns.