Effect of Dividend Payment Policy on the Financial Performance of the Firms Listed at the Nairobi Securities Exchange

Abstract

Dividend policy is a tool an entity uses in the distribution of wealth than wealth creation. Differing arguments on dividend policy among various entities has led to an endless debate. In addition, many contradicting theories explaining dividend policy and financial performance are evident and this has led to the empirical and theoretical correlation controversies. Objective of this study was determine the effect of dividend payment policy on the financial performance of the firms listed at the Nairobi securities exchange. This research’s population was 65 firms at Nairobi securities exchange, dividend payout ratio parameterized dividend payment policy, assets parameterized size, current ratio parameterized liquidity, and return on assets parameterized financial performance. Collection of data was from 2018 to 2022 by aid of a data sheet. This research utilized descriptive research design with aid of STATA software. Outcome from analysis conformed that, R square was 0.284, which translates to 28.4% of variability in return on assets of listed entities are due to three variables the researcher selected. This implies that factors not in the model explained 71.6% in variability. The p value was 0.001, which is below 0.05 significance level, which confirms that the overall model was significant implying goodness fit. Further, analysis revealed that, dividend payment policy has a negative impact on the return on assets of the listed entities (β=-0.527, p=0.000). Analysis confirmed that, size of the entities has a positive link with the financial performance. However is not significant (β=0.239, p=0.64). Liquidity was confirmed to be critical in the analysis because it revealed a positive and significant link with return on assets of the entities (β=0.036, p=0.000). Survey recommends that, business organizations suspend dividends because they are hurting organizations or reduce payout. Additionally, entities can invest in growth of their entities if they are not generating cash flow, which is not enough to support payment of dividends. Investment in growth by expanding into new markets ensures cash flow is increased