The relationship between dividend changes and subsequent period earning changes of saccos in Kenya

Abstract

Dividend policy is a very important aspect of financial management but remains as the ten important unresolved problems in finance. This is because it affects such areas as the financial structure of the firm, the flow of liquid funds, liquidity and investor satisfaction. Not only do managers show extra care in their payout decisions, especially in changing payout decisions, but also the markets react strongly to dividend changes, and more so, to dividend omissions and initiations. The purpose of this paper was to study the relationship between dividends changes and subsequent period earnings changes of SACCOs in Kenya. This research involved the use of a descriptive survey. The target population of this study consisted of 4233 SACCOs registered under the Societies Act in Kenya. The SACCOs were selected using Systematic random sampling method. Nairobi was selected as it is the center of SACCO activity as about 40% of all registered SACCOs in the country are found here. In this study emphasis was given to secondary data which was obtained from the financial results filled at the ministry of cooperative and development. The data included the actual dividend paid by the SACCOs and financial statements data over five year period of 2005-2009. Regression analysis model was used to test the data. The study concluded that there is a positive relationship between dividend changes and subsequent period earnings change in the dividend payment year and previous years but only a significant though modest relationship between dividend change and subsequent year‟s earnings. The study also concludes that managers only incorporate their expectation of earnings in relatively shorter time when changing dividend payment. This is due to various uncertain factors which may prevent managers from incorporating longer future into consideration into financial decisions thus they prefer to use a short time period to raise feasibility