Relationship Between Dividend Payout and Efficiency of Savings and Credits Cooperative Societies in Nairobi County, Kenya

Abstract

In the past few years, there has been the collapse of SACCOs, with members losing all their savings. Thus, the study sought to determine the relationship between dividend payout and the performance (efficiency) of SACCOs in Nairobi County. The theories that were deemed relevant to anchor the study included The MM Dividend Irrelevance Theory, The Bird-In-The-Hand Theory and The Tax Preference Theory. The study adopted a descriptive design. The target population was 46 SACCOs in Nairobi County registered under SASRA. The study adopted a census since the population was relatively small. Secondary data was collected on five years’years' averages from the year 2016 to 2020. The study found the average efficiency score on savings and credits cooperative societies in Nairobi County between 2016 and 2020 was around 66.62%. The study further found the average efficiency of the SACCOs in 2016 was 65.76%, 59.97% in 2017, 66.26% in 2018, 65.77% in 2019 and 68.07% in 2020. The most inefficient year of SACCOs was 2017 and this could have been due to the elections in the country. The study found that a positive and significant relationship exists between dividend payout and performance (efficiency). The study concluded that dividend payout could explain 60.53% of the variations in performance (efficiency). Notably, it was found a unitary change in the dividend payout would change the efficiency of savings and credits cooperative societies in Nairobi County by 2.039 units when other factors are held constant. The study concluded that dividend payout is a matter of considerable importance to management and SACCO members and economists seeking to understand and appraise the functioning of the SACCOs in the country. The study recommended that managers of the SACCOs in Nairobi County need to dedicate adequate time to designing a dividend policy that will enhance firm performance and, therefore, shareholder value. Managers need to consider factors such as borrowing by members, income from investments and membership growth, members deposits, borrowing from financial institutions, interest on borrowing, human resources and operating expenses since it affects the efficiency of the institutions. The management of the SACCOs could use the study findings as the starting point to understand how industry factors influence the dividend payout ratios of their firms. Further, it is recommended that the SACCOs should pay dividends to ensure that they have a positive outlook in the future.