The effect of ownership structure on dividend payout of firms listed in the Nairobi securities exchange

Abstract

This study set to determine the effect of ownership structure on dividend payout of firms listed in the Nairobi Security Exchange. The objective of the study was to examine the relationship between determinants of dividend payout ratios from the context of a developing country. The study looked at the issue from a developing country perspective by focusing specifically on firms listed on the Nairobi Securities Exchange (NSE). The study used a descriptive research design approach and the target populations of the study were all the 62 companies listed at the Nairobi Securities Exchange, under the main segment. The study used secondary data sources available at the companies’ financial statements at the NSE or Capital Market Authority offices. This study was conducted with the primary aim of establishing the effect of ownership structure on firms’ dividend policy. To achieve the above objectives, a regression analysis was conducted whereby changes in firms’ ROE were regressed against the three explanatory variables; ownership structure, Size and Leverage. Ownership for a period the period (2012-2013). Data on changes ROE (Y) for the study firms’ was obtained from the NSE; corresponding data for Size and leverage respectively (X1, X2) was also obtained from the same source. The two sets of data were then subjected to a regression analysis. The study found ownership structure of firms’ (X1, X2) influenced a dividend payout especially smaller firms that were owned by directors and their families. Two major conclusions were drawn from the findings of this study. The results indicated that the firms’ ownership structure does not significantly influence dividend policy. It also concluded that other factors other than ownership structure were responsible for changes in dividend policy of NSE listed firms. The main limitation was that the amount of information collected was enormous. Therefore, the study recommends that further research be done to establish: the effect of other forms of ownership structures on firms’ dividend policy; and why ownership structure exhibited high dividend payout for companies that are owned by board members and their relatives. The researcher had to discriminate among them through coding and deduction which greatly reduces the amount of data that can eventually be included in the final report. This study can be of importance to the to the management of the firms, the study will be important in assisting the management in their pursuit to increase profits of their companies through finding strategies of managing ownership structure.