Effects of Dividend Payout Ratio on the Value of Firms Listed at the Nairobi Securities Exchange, Kenya

Abstract

Dividend payout effect on firm value has been an area of great controversy in finance and there has not yet come a unified conclusion concerning it. There have been different theories that have been developed on dividend policy and also many studies have been conducted on the same topic and still there has not come up with a unified solution on the topic thus my study to establish whether dividend payout ratio has an effect on firm value for companies listed on NSE. The research employed descriptive survey thus giving description on existing phenomena without changes. The study population was 56 companies listed in the Nairobi Securities Exchange for the period 2014 to 2020.The data collected included dividend per share, earnings per share, current liabilities, current assets, net profit/loss, total revenue, total assets, market value of equity and book value of equity. The independent variable was dividend payout ratio, the control variables were profitability, liquidity, and company size and firm value was the dependent variable. The data was organized and summarized using Microsoft excel and then exported to STATA version 12 for further analysis.The correlation analysis concluded that liquidity had a weak positive significant relationship with the firm's profitability (R= 0.155). The firm's size had moderate positive significance with the profitability of the firm (R=0.405).Firm value had a weak positive significant relationship with the profitability of the firms (R=0.133). However, liquidity had a weak negative significant relationship with firm size (R=-0.325). Finally, the firm value had a weak positive influence on firm size (R=-1.91). Panel regression analysis concluded that dividends are not significantly affected by the firm value (Beta=170.4, P>0.05). However, firm value was significantly affected by profitability positively and firm size negatively (Beta = 2309.62 and Beta = -12708.52, respectively).