THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE AND DIVIDEND PAYOUT AMONG NON-FINANCIAL FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Abstract

Capital structure and dividend payment decisions allow companies to reduce their weighted average capital cost and maintain a particular amount of capital for specific commitments. However, after the major contributions of Modigliani and Miller, the literature on dividend policy and capital structure remains a mystery. The correlation between capital structure and corporation’s value is controversial both empirically and theoretically. In Kenya, most non-financial corporations have lagged shareholder expectations, sparking shareholder apathy, and contributing to a decline in their performance, resulting in volatile and low dividend payments. At the NSE, around 75% of the quoted corporations have not paid a dividend from 2014 and another 15 corporations have reduced their dividend per share. Thus, this aimed at determining the relationship between capital structure and dividend payout among non-financial firms listed at the NSE. The Modigliani-Miller theory, agency theory, and the pecking order theory were discussed as key study’s theories. The research adopted a descriptive research approach and undertook a census of the 45 non-financial publicly traded companies as of 31 December 2020 at the NSE. Data was gathered from the audited yearly accounting reports for individual non-financial corporations. Thus, only secondary data was employed for the study. Data for 6-year period i.e., 2015 to 2020 was collected through a data collection sheet. Descriptive and statistical tools and the regression model was employed for data analysis. The results documented that capital structure had a negative and significant impact on DPR while profitability had a positive and significant effect on DPR on the quoted non-financial entities. The results further documented that firm growth had a positive and significant effect on DPR while liquidity had a negative but insignificant effect on the quoted non-financial corporations’ dividend payout. The study concluded that capital structure, profitability and firm growth significantly affect dividend payout by non-financial corporations quoted at NSE