The Relationship Between Dividend Pay-out Ratio and Value of Shares of Firms Listed at the Nairobi Securities Exchange

Abstract

This study was carried out with an objective of establishing the nature of relationship between the dividend pay-out ratios and share prices for firms listed at the NSE for the period of five years between 2009 and 2013. The effect of dividend policy on a firm’s value has remained a puzzle in corporate finance for several decades. The various studies in the past have not been able to conclusively determine the nature of relationship between dividend pay-out ratios and the resultant value of shares. The study used a multivariate regression analytical model with the share price being the dependent variable and the independent variables being the dividend pay-out ratio, total assets and the rate of growth in earnings of the selected companies. The findings of the study showed that dividend pay-out ratios affect the value of shares of a firm and that this relationship is significant and positive. Results also revealed that the lag of dividend payout has a significant relationship with the share value. Further the findings showed that both total assets and growth in earnings have an insignificant relationship with share price. Therefore, any change in these variables may not influence the share value. Finally similar studies were suggested to be carried out using additional moderating variables and over a longer period of time.