Determinants of Dividend Payout of Commercial Banks Listed in the Nairobi Securities Exchange

Abstract

Businesses are constantly in a state of flux, undergoing transitions, evolutions, and transformations, all in pursuit of reaching the pinnacle of their performance. At the heart of their mission lies the imperative to maximize their assets and equity, ultimately generating robust returns. This strategic approach ensures that these enterprises remain competitive and adaptable in the ever-changing landscape of the business world. The core focus of this study was to delve into the certain elements that influence the allocation of dividends in commercial banks in Kenya are of particular significance. This study utilized a descriptive research approach finely tuned to match the distinct traits of the study's subjects and the necessities of data analysis in order to shed light on the current situation. The research encompassed a comprehensive cohort of 11 commercial banks, providing an insightful panorama of the dynamics within the banking sector. Data collection spanned a six-year period, encompassing the years from 2016 to 2021. The findings of this study unveil a compelling narrative. Investment opportunities, bank size, financial leverage, and operating cash flow, collectively, account for a substantial 53.9% of the total variance in dividend payout among the listed banks in Kenya. This assertion finds robust support in the value of the coefficient of determination, R-squared, which stands at 0.539. Specifically, the regression analysis has yielded significant and positive coefficients for each of these determinants. Coefficient for investment opportunities was not only statistically significant but also positive (β = 0.09102, p = 0.000 < 0.05). In practical terms, this implies that a one-unit increase in investment opportunities among the listed banks leads to a substantial improvement of 0.09102 units in dividend payout. Furthermore, coefficient for bank size was equally both statistically significant and positive (β = 0.04701, p = 0.000 < 0.05). When translated into practical implications, this signifies that a one-unit increase in the size of the bank contributes a noteworthy enhancement of 0.04701 units in dividend payout. Moreover, analysis has unveiled a statistically significant and positive coefficient for financial leverage (β = 4.69046, p = 0.000 < 0.05). In tangible terms, a one-unit increase in the financial leverage of the listed banks translates into a substantial improvement of 4.69046 units in dividend payout. Additionally, coefficient for operating cash flow also emerges as statistically significant and positive (β = 0.42993, p = 0.000 < 0.05). In practicality, this signifies that a one-unit increase in the operating cash flow of the listed banks results in a meaningful enhancement of 0.42993 units in dividend payout. Consequently, operating cash flow emerges as a pivotal and decisive determinant of dividend payout among the listed banks in Kenya. In summation, this study offers illuminating insights into the fundamental determinants that wield influence over dividend payout within the sphere of commercial banks in Kenya. The factors of investment opportunities, bank size, financial leverage, and operating cash flow have been identified as pivotal in shaping dividend decisions. In light of these findings, the study suggests that further research is warranted, focusing on the assessment of management capabilities and the fical performance of banks indexed on the NSE. Such endeavors promise to provide a deeper and more nuanced understanding of the intricate dynamics within the banking industry.