Dividend policy and ownership structure of firms quoted at the Nairobi Stock Exchange

Abstract

This study investigates the relationship between ownership structure and dividend payout ratio of quoted firms in Kenya. The population of the study IS all the listed companies at NSE over the 8 - year period (1998 - 2005), and the data on OPOR was obtained from annual financial statements and ownership structure was obtained from CMA and NSE. The MS excel was used to analyze the data and the Chi-Squared test of independence was used to test the hypothesis. The ownership structure of firms listed in Kenya is mixed with institutional investors dominating, owning an average of 40%. Foreign ownership 35%, individuals 17% with state owning 8%. The average DPOR of listed firms in Kenya Is 56% with firms dominated by foreigners having a DPOR of 66%, local institutions 49%, individual controlled firms 39% wh1le state owned firms 19%. From the firms studied, 13.8% paid dividend despite the fact that they had negative EPS indicating management's reluctance to do away with a dividend. The results of the study suggest that the influence of the state shareholder, individuals, and foreigners to firm's DPOR is insignificant if not completely irrelevant However, it was found that local institutional investors have a significant impact on the DPOR, and this supports findings by Eckbo and Verma (1994) that large institutional stakes are associated with higher payout. It IS therefore recommended that appropriate policy measures are pursued to increase mobilisation of funds from both the individual and institutional investors. Awareness programs need to be strengthened in regard to the role and importance of capital markets. Similarly, fiscal incentives on dividend income should be reviewed given that management is reluctant to omit dividend even when the firm is making losses.