The relationship between dividend payout and the value of Commercial Banks listed at the Nairobi securities exchange

Abstract

The main objective of this paper was to investigate the relationship between dividend payout and the value of commercial banks listed at the Nairobi Securities Exchange. Dividend policy has been analyzed for many decades and it refers to the issue of how much of the total profit a firm should pay to its stockholders and how much to retain for investment so that the combined present and future benefits maximize the wealth of stockholders. It summarizes the information from other researchers who have carried out their research in the same area of dividend policy and firm value. The study period was a six year period i.e. 2009-2014.This study involved the use of a descriptive research design using 10 out of the 11 commercial banks listed at the NSE. The study employed secondary data. This study found that there was a significant relationship between dividend payout and the value of commercial banks listed at NSE. All the dependent variables (dividend payout ratio, growth opportunity, and profitability) had a significant impact on the value of the banks since their p-value was less than the accepted critical value. In addition analysis of variance showed that the combined effect of dividend payout ratio, current ratio, and growth opportunity was statistically significant in explaining changes in value of the listed banks in Kenya. This further implied that the overall model was significant.Correlation coefficient was also used to determine the relationship between the variables and concluded that dividend payout ratio had a positive correlation with the value of the firm. The other variables had also a positive correlation with the value of the firm but liquidity had a negative relationship. The study recommends that since dividend policy has an effect on the value of commercial banks listed at the NSE, companies should pay dividends to maintain a high firm value. In carrying out the dividend payout decision, the management should also consider other factors such as, growth opportunities and current ratio since they have an impact on the value of the firm. In addition to the above this study recommends diligence in the handling of dividend payout information among the sector players in a bid to ensure that there is inclusivity of the stock market stakeholders. Therefore, policies guiding the sharing of this information should be availed to enhance market control.