Effect of Working Capital Management on Dividend Payout of Non-financial Firms Listed at the Nairobi Securities Exchange

Abstract

Depending on how effectively disposable resources are managed and how cautious a firm is when it comes to resolving operational concerns, the skill of striking a balance between firm working capital and dividend payments frequently determines business success or failure. The unfavorable effects of both overinvesting and underinvesting in working capital have encouraged research on the most effective policy for managing working capital. Efficient WCM leads to availability of free cash flows which then act as a catalyst to dividend payout. The main intention of this study was to examine WCM impact on dividend payout of listed non-financial firms in Kenya. The Keynesian liquidity preference theory, the free cash flow theory and the transaction cost theory were adopted to anchor the study. A descriptive research design was utilized in this research. The target population was the 42 listed non-financial firms in Kenya. Secondary data was gotten from the CMA and specific listed non-financial firms annual financial statements for a 5year period (2017 to 2021). Upon collection of the data, inferential as well as descriptive statistics generated included frequencies and percentages and simple and multiple linear regression respectively. The regression results produced a 0.154 R square which implies that 15.4% of the changes in dividend pay-out among listed non-financial firms can be described by the six selected variables for this research. The overall model was found to be statistically significant as exhibited by a 0.000 p value that was below 0.05. The study further revealed that individually, DIO, DSO and DPO do not have a significant impact on dividend payout of non-financial firms listed at the NSE (β=0.081, p=0.232); (β=0.-101, p=0.133); (β=-0.026, p=0.822). Both firm size and profitability positively affected dividend payout as shown by (β=0.261, p=0.000) and (β=0.214, p=0.000) respectively. Financial leverage exhibited a negative and significant dividend payout influence as shown by (β=-0.202, p=0.008). The research recommends management of listed non-financial firms ought to focus on enhancing their asset base and their profitability as this will enhance dividend payout. The study further recommends the need to for listed non-financial firms to set debt limits as high debt levels might have a negative impact on dividend payout. The research recommends the necessity for further researchers to focus on other dividend payout determinants.