Relationship between prior period dividends and financial performance of firms listed at the Nairobi stock exchange

Abstract

Dividend behavior of firms is one of the areas of finance that has aroused the interest of financial analysts, academicians and all manner of professionals interested in finance. Along with capital structure, dividend policy has been one of the first areas of corporate finance to be analyzed with a rigorous model, and it has since been one of the most thoroughly researched issues in modern finance. In spite of the interest developed and the numerous researches undertaken, a lot remains unexplained concerning the role of dividends. The purpose of the study is to determine the relationship between prior period dividends and the financial performance of firms listed at the NSE. The study has reviewed related literature with regards to the area of study which seems to favour the argument that dividend payment indeed leads to a better financial performance for a firm. To undertake the study, a population of all companies listed at the NSE has been considered of which a sample of 34 companies was selected. The variables in the study are the firms’ financial performance (earnings per share) and the prior period dividends (dividend per share) The study relies on secondary data collected from the companies’ websites, CMA, NSE and ICPAK amongst other sources. The data has been analyzed using the applications of Statistical Package for Social Scientists (SPSS) and then presented in the form of tables and graphs. The results of the study reveal that majority of firms enjoy a better financial performance as indicated by their EPS after issuing dividends. As such, a relationship indeed exists between prior period dividend payments and financial performance of a firm. However, the study fails to take into consideration other factors that also affect the financial performance of a firm