The Effect of Dividend Policy on the Shareholders wealth of Firms listed on the Nairobi Securities Exchange

Abstract

The study examined the effect of dividend policy on the shareholders wealth of firms listed on the Nairobi Securities Exchange. To achieve the objectives of the study, quantitative research design was employed. More specifically, descriptive research design was adopted. Secondary data was utilized for empirical analysis. The target population for the study was all listed companies at the Nairobi Securities Exchange as at the year 2018. This constitutes the 65 companies listed across 13 market segments. However, the companies listed under GEMs were excluded from the analysis leaving 60 companies as the target population. The study period spanned from 2009 – 2018. Data was collected form company’s respective annual audited financial reports. Panel data analysis was employed for empirical analysis. The findings of the random effects model were that shareholders wealth is positively determined by the dividend pay-out ratio. Similarly, divided yield had a positive effect on the shareholder wealth though insignificant. The study therefore concludes that dividend policy matters in determining shareholders wealth. The cross – market segment analysis found dividend policy effect is more pronounced in the banking and insurance segment. For the construction and services segment and Construction and Allied segment dividend yield is significant in determining shareholder wealth. Dividend policy was insignificant in determining the shareholder wealth for agricultural and manufacturing market segments. Based on the findings, the study recommends the need for the investors to diversify their investments portfolios to maximize their wealth. In addition, the firms should consider DPR more than DY because shareholders are more likely to understand dividend pay – out ratio as opposed to dividend yield.