Dividend payout decisions and industry influence: Evidence from Nairobi Stock Exchange

Abstract

This study sought to find out the forms of dividend payout of firms listed at the Nairobi Stock Exchange by industry and to establish the influence of industry on dividend payout policies of firms. This study was a relational survey. The population of interest in this study consisted of all the firms quoted at the Nairobi Stock Exchange (N.S.E). This study was limited to listed companies due to lack of readily available data from private companies. After thorough scrutiny of the available data in terms of the period covered by the study, 42 firms were finally used in the study. Dividend data was extracted from published reports of quoted companies. The data obtained from the secondary sources was analyzed using regression analysis. A modified version of the model developed by Rozeff was used to test for the presence of industry effects. In the model, dividend payout was the dependent variable and the independent variables were selected to surrogate for the transactions cost of external financing and the agency costs of external financing and the agency costs of outside equity. The data on dividend payout, past revenue growth, percentage of insider holdings and the number of stockholders were drawn from the company accounts as well as the data provided to the NSE by the companies. In conclusion, the study found that cash was the only form of dividend which was paid out by these firms. Thus, in terms of industry, it is not possible to conclude that a particular form of dividend payout is preferred over the other since all the firms paid their dividends in the form of cash. As the study found, industry factors had a strong positive influence on dividend payout ratios in three industries namely agriculture, finance and investment, and industrial and allied. Industry factors had a weak positive influence on dividend payout ratios in the commercial and services industry. The study recommends that the management of various companies listed on the NSE take cognizance of the findings in this study as a starting point to understanding how industry factors influence the dividend payout ratios of their firms. The study also recommends that investors use this information to make better decisions in where to invest their funds after evaluating what their interests. These results should aid them in making decisions on which industries to invest in so as to reap better benefits in terms of dividends.