dc.description.abstract | Firm value is an indispensable focus for every establishment since it depicts
stockholders’ fortunes. Dividend policy is thought to be a key predictor of
stockholders’ wealth. Payout-policy nonetheless, still remains a contested topic. The
general objective of this study was to investigate the relationships among dividend
policy, agency costs, liquidity and value of firms listed at the Nairobi Securities
Exchange (NSE). The specific objectives were to; examine the effect of pay-out
policy on corporate worth, evaluate the intervening effect of agency costs on the
relationship between payout-policy and firm worth, determine the moderation effect
of liquidity on the link between payout-policy and entity worth and determine the
joint effect of dividend policy, agency costs and liquidity on company worth.
Literature review brought out various knowledge gaps which included; varying results
on the effect of pay-out policy on firm value, contextual differences, fewer studies
conducted on the joint effect of payout-policy, agency costs and liquidity on corporate
value, limited studies testing the mediating and moderating effect of agency costs and
liquidity respectively in the link between payout-policy and corporate worth and
varying measurements of the constructs. In order to address the aforementioned gaps,
four hypothetical statements were drawn up and a positivistic philosophical approach
adopted. A descriptive research design using panel data was espoused. Balanced
secondary data for 52 firms was obtained from the NSE. The dataset was run through
descriptive statistics analysis, diagnostic and specification tests, correlation analysis
and finally to inferential statistics analysis. The four hypotheses were tested using the
general least squares (GLS) fixed-effect model. Baron and Kenny (1986) model was
used to test for mediation and moderation effects of agency costs and liquidity
respectively. The study reported that payout-policy predicts corporate value. The
connection between pay-out policy and corporate worth is mediated by agency costs.
Liquidity was also shown to moderate the interrelationship between pay-out policy
and corporate worth. Payout-policy, agency costs and liquidity jointly explained 85%
variations in corporate worth. This study recommends that insiders should craft payout
policies that grow fortunes by taking quantum and frequency of pay-outs into
account. Agency costs and liquidity should further be considered in explaining the
connection between pay-out policy and wealth. This study specifically validates
agency theory by reporting that dividend pay-out implies that the stocks are valuable
and also cuts liquidity that can be overinvested. Consequently, payment curtails
agency costs and grows wealth. This study also provides invaluable knowledge to
NSE and Capital Markets Authority (CMA) specifically on investor training
initiatives and policy formulation. Agency costs and liquidity are proven to be
alternative criterion for assessing entities to be put under liquidation which is key
information for CMA. The limitations of this study included; the study relied on
regression modelling that omitted non-financial factors, the study was restricted to the
NSE, making generalization of the finding problematic and difficulty in incorporating
mode of dividend pay-out since majority of entities made cash pay-outs at the NSE | en_US |