The effects of earnings on dividend policy of firms listed at the Dar es salaam stock exchange
Mchomvu, Athumani IH
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The main aim of this paper is to investigate on the effects of earnings on dividend policy of firms listed at the Dar Es Salaam Stock Exchange. Dividend policy has been analyzed for many decades which refers to the issue of how much of the total profit a firm should pay to its stockholders and how much to retain for investment so that the combined present and future benefits maximize the wealth of stockholders. This provided theoretical and empirical information from publications on earnings on dividend policy of firms. It summarizes the information from other researchers who have carried out their research in the same area of dividend policy and firm value. The study employed both quantitative method through analysis of the financial statements using various models and ratios to provide predominantly quantitative and qualitative data to the study. The target population as of October 2013 there are seventeen listed companies on Dar Es Salaam Stock Exchange. The study used secondary data which was obtained from the financial statements of the Listed Firms on Dar Es Salaam Stock Exchange from 20092013. The data analysis techniques included descriptive statistics like the mean, minimum, maximum and standard deviation. In addition, inferential statistics like correlation analysis and regression analysis. The dividend payout ratio is regressed against the five explanatory variables: profitability, risk, cash flow, growth and size. The findings in the study showed that correlation coefficient for all were positive valued indicating that the variables are positively related. From the regression model, a correlation coefficient value of 0.407 was established. This portends a very good linear relationship or dependence of dividend payout on earnings. From the study findings, it is evident that the most critical factors considered by a firm in coming up with a dividend policy are the expected cash flows, risk, profitability, growth and size of the firm. a correlation coefficient value of 0.407 was established. This portends a very good linear relationship or dependence of dividend payout on earnings. A coefficient of determination (R-square) value of 0.166 was established. Profitability, risk, cash flow, growth and size, according to the model summary from the data analysis, profitability, growth, cash flow, risk and size had a positive impact on the dividend policy. The research study concluded that earnings to some minimal extent, influenced the dividend policy of individual firms. Based on the findings of this research study, the following recommendations are made. Organizations should ensure that they have a good and robust dividend policy in place. It is also recommended that firms should maintain a clear and consistent dividend policy for the dividend policy to affect the value of the firm.