Empirical investigation of the relationship between dividend policy and agency costs: a study

Abstract

The research set out to establish an empirical investigation in the relationship between the dividend policy and agency costs of the firms listed at the NSE. The main objectives of the study was to: 1) Establish the agency costs of the firms listed at the NSE 2) Establish the dividend policies of the firms listed at t6he NSE 3) To establish the relationship between the dividend policy sand the agency costs of the firms listed at the NSE. Secondary data was obtained from the published accounts of all the firms listed at the NSE in the years 1999-2008. The firms which were not listed in the stock exchange in this period, or were suspended from the exchange for any duration were excluded from the study. Firms which did not declare dividends for some considerable period due to some technicalities were ale excluded. Multiple linear regression was used to establish the relationship between th agency costs and the dividend policy of the firms while trend analysis was used to establish the dividend policy of the firms. The study established that the firms listed at the NSE do use a policy of paying a constant amount per share but they also reduce the dividends in case the earnings fall or when they have a more viable investment opportunity. The agency cost of the firms was established to be high especially for the small firms. No significan! relationship was established between the agency costs and the dividend policy or that the firms listed at the NSE do not use the dividend policy to --. mitigate the agency costs