The effects of macroeconomic variables on the dividend payout of firms listed at the Nairobi securities exchange

Abstract

Explaining factors that influence dividend payout has been one of the most difficult challenges facing financial economists. Various have been conducted to determine factors that influence dividend payout and concluded that profitability, liquidity, size and earned to contributed equity mix positively influence dividend payout. The study sought to understand and test the relationship between dividend payout of firms listed at the Nairobi Securities Exchange and macroeconomic variables that included; inflation, exchange rates, money supply, interest rates. The objective of this study was to identify the effects of these macroeconomic variables and their influence the dividend payout and to estimate relationship between them. Annual data for the period 2002 to 2012 were used. The study used secondary data of dividend payout and macroeconomic variables from the NSE and Central bank of Kenya on dividend payout rates, inflation rates, interest rates, exchange rates and money supply. The data was analyzed using a regression on the dividend paid out as the dependent variable against independent variables which were inflation rates, interest rates, exchange rates and money supply. The study has established that dividend payout has a significant relationship with the selected macro economic variables. The study concluded that macro economic variables are very significant in determination of dividend payout by firms listed at the Nairobi securities Exchange Inflation rates have a significant positive relationship with dividend payout interest rates had very little impact on the dividend payout while exchange rates had a negative effect on the dividend payouts. Money supply had a positive effect on the dividend payouts although relatively mild. The study further recommends that policy makers should review the impact of macroeconomic variables on the NSE development. It further recommended that surveys be conducted to establish if investors make investment decision based on dividend payout.