Determinants of dividend policy: evidence from the Nairobi Stock Exchange

Abstract

Explaining dividend policy has been one of the most difficult challenges facing financial economists. Despite decades of study, we have yet to completely understand the factors that influence dividend policy and the manner in which these factors interact. The dividends and dividend policy were the subject of many studies for many years from past to present (Zhou and Ruland. 2006): This study sought to find out the determinants of dividend policy. This was a descriptive survey on a population of all the firms listed on the Nairobi Stock Exchange from whom companies that had traded consistently from 2004 to 2008 were sampled. The study used secondary data to collect data on the on total assets, current assets, current liabilities, common equity, retained earnings, net income, and market capitalization from the companies' books of account on data available at NSE. The data was analyzed using a regression on the dividend payout ratio as a dependent variable against the independent variables which were: profitability, firm size, growth opportunity, earned equity mix and liquidity. The study concludes that profitability, liquidity, size, earned to contributed equity mix positively influence dividend policies while growth opportunity was also found to positively influence dividend policy contrary to past studies and expectations.