The Effect of Dividend Policy on Financial Performance of Firms Listed on the Nairobi Securities Exchange
One of the most important decisions a company is faced with is what to do with its surplus; it can either distribute the earnings to the investors as dividends or retain it in the business as an addition to the shareholders’ equity. Managers must not just consider the amount of the organization's income is required for investing but correspondingly the likely impact of their choices on the budgetary execution of the organization. The target of the research was to ascertain the impact of dividend policy on firm financial performance on firms listed on the NSE. The study looked at various components of dividend policy, namely; dividend pay-out ratio, form and timing of dividends and dividend per share. Firm financial performance was measured by return on assets. Size of the firm and leverage were used as control variables. The study period was a ten-year term (2006-2015). The study entailed the use of a descriptive research design. The populace was all the organizations listed on the NSE. Information was gathered for forty-two firms listed on the NSE, which were found to have comprehensive information for the whole ten years under study. The study found that correlation between firm performance and dividend payout-ratio was positive and significant and that increase in firm financial performance is associated with an increase in dividend payout-ratio and the other way around. The correlation of firm financial performance and form of dividend payment was also found positive and significant indicating that the form in which dividends are paid out has a positive effect on firm financial performance. The study also concludes that timing of dividend payments is positive and significant in firm financial performance and that the number of times which dividends are paid out in a year has a positive effect on firm financial performance. The study also concludes that the correlation between firm financial performance and dividend per share was positive and significant and that higher dividends per share are associated with higher firm financial performance. The study also found that the correlation between size of the firm and firm financial performance is positive and significant and that an increase in firm size is associated with an increase in financial performance. The correlation between leverage and firm financial performance is negative and an increase in leverage ratio is associated with a decrease in firm financial performance.
The following license files are associated with this item: