This study sought to establish the factors that affect dividend payout of listed commercial banks in Kenya. Specifically, profitability, liquidity, firm size, and past dividend were determined if they affected dividend payout among listed commercial banks in Kenya. The study was based on the Bird in Hand Theory. A correlational research design was used to examine relationship among the variables. The target population for this study consisted of all listed commercial banks in Kenya.
Purposive sampling procedure was used to select listed commercial banks for the study. The study employed secondary data which was obtained from the financial statements of the commercial banks for a period of five years ranging from 2012 to 2016. The study showed that profitability, liquidity, firm size and past DPS accounted for 77.69% of variations in dividend payout for listed commercial banks. All the four factors were found to be significant in affecting dividend payout for the listed commercial banks.
Profitability and past dividend per share were found to be positively correlated with dividend payout while liquidity and firm size were found to be negatively correlated with dividend payout. The researcher recommends more research to be done taking into consideration other factors. These include factors such as the commercial banks management, legal environment, and competition within the banking industry.
Table of Contents
1.0 Background of the study
1.1 Empirical Review
1.1.1 Profitability and Dividend Payout
1.1.2 Liquidity and Dividend Payout
1.1.3 Firm size and Dividend Payout
1.1.4 Past dividends and Dividend Payout
1.2 Critical Review of Empirical Studies
1.2.1 Knowledge gap
2.0 Statement of the problem
3.0 Objectives of the Study
4.0 Methodology
4.1 Data collection procedures
4.2 Data Analysis
5.0 Findings
5.1 Descriptive Statistics
5.2 Regression Analysis
5.3 correlation analysis
5.4 Discussion of the Study Findings
5.5 Interpretation of the Study Findings
6.0 Summary of findings and conclusions
6.1 Summary of the Findings
6.2 Conclusion
7.0 Suggestions for further Research
8.0 Limitations of the Study
Research Objectives and Core Themes
This study aims to identify and analyze the primary determinants influencing dividend payout policies within commercial banks listed on the Nairobi Securities Exchange (NSE). By examining the relationship between financial variables and payout decisions, the research seeks to understand how specific corporate indicators drive management strategy in the Kenyan banking sector.
- Impact of profitability on dividend distribution.
- Influence of corporate liquidity on cash dividend payments.
- Effect of firm size on dividend policy outcomes.
- Role of past dividend performance in shaping current payout decisions.
Excerpt from the Book
1.1.1 Profitability and Dividend Payout
Previous research explored the relationship between dividend payout and profitability. Amidua and Abor (2006) and Najjar (2009) found in his research that like in the developing countries, dividend payment in companies of Jordan is also effected by profitability. Kun Li and ChungHua (2012) asserted that firm’s profitability and size significantly affect the payout ratio.
Current earnings which are also known as profit after tax is representing the capacity of corporation to pay dividends and thus it has a positive relationship with dividends (Karam and Puja Goyal, 2007). Besides that, the level of profit is considered as an invariable starting point in the management’s consideration of whether dividend should be paid or not in any given year. (Barron, 2002). A study by Zhou &Ruland (2006) revealed that high dividend payout firms tend to experience strong future earnings but relatively low past earnings growth despite market observers having a contradicting view. The findings of another study done by Arnott&Asness (2003) also revealed that future earnings growth is associated with high rather than low dividend payout. They concluded that historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low.
Arnott&Asness (2003) suggests that the positive relationship between current dividend payout and future earnings growth is based on the free cash flow theory. Low dividend resulting in low growth may be as a result of suboptimal investment and less than ideal projects by managers with excess free cash flows at their disposal. This is consistent with the agency cost theory. Another explanation by Arnott&Asness (2003) for the positive relationship between dividend payout and growth in future earnings is that managers are reluctant to cut dividends. A high payout ratio indicates management’s confidence in the stability and growth of future earnings and a low payout ratio suggests the opposed. The positive relationship is also driven by sticky dividends combined with mean reversion in more volatile earnings (Arnott&Asness, 2003).
Summary of Chapters
1.0 Background of the study: Discusses the theoretical foundations of dividend policy and the importance of financial decision-making for listed companies in Kenya.
1.1 Empirical Review: Reviews existing literature regarding the relationships between dividend payout and factors such as profitability, liquidity, and firm size.
1.2 Critical Review of Empirical Studies: Examines broader financial theories and identifies existing knowledge gaps in current dividend research.
2.0 Statement of the problem: Defines the necessity of investigating the drivers of dividend policies specifically within Kenyan commercial banks.
3.0 Objectives of the Study: Outlines the four specific research goals regarding the variables affecting dividend payout.
4.0 Methodology: Describes the correlational research design and the data collection process using secondary financial statements from 2012 to 2016.
5.0 Findings: Presents the descriptive statistics and regression results regarding the variables analyzed.
6.0 Summary of findings and conclusions: Synthesizes the results and concludes on the significant factors affecting dividend payouts in the target sector.
7.0 Suggestions for further Research: Proposes future directions, including the investigation of management and competitive factors.
8.0 Limitations of the Study: Acknowledges constraints regarding study duration and the specific sample size of listed banks.
Keywords
Liquidity, Firm Size, Dividend Payout, Listed Commercial Banks, Nairobi Securities Exchange, Profitability, Past Dividend, Financial Management, Correlation Analysis, Regression Model, Dividend Policy, Earnings, Shareholder Wealth, Corporate Finance, Banking Industry.
Frequently Asked Questions
What is the primary focus of this research?
The research investigates the factors that influence the dividend payout decisions of commercial banks listed on the Nairobi Securities Exchange in Kenya.
What are the key independent variables examined in the study?
The study analyzes four main determinants: profitability, liquidity, firm size, and past dividend per share.
What is the primary objective of this work?
The core objective is to establish how these four identified factors impact the dividend payout ratios of the commercial banks under consideration.
Which methodology was employed for the research?
The researcher utilized a correlational research design and performed multiple linear regression analysis on secondary data collected from financial statements.
What does the main body of the work cover?
The main body covers the theoretical background, an empirical review of existing studies, the methodology used for data analysis, and a detailed presentation and discussion of the research findings.
Which keywords characterize this study?
The study is characterized by terms such as dividend payout, liquidity, firm size, profitability, and Nairobi Securities Exchange.
How much of the dividend payout variation is explained by the model?
The research findings demonstrate that the four independent variables collectively account for 77.69% of the variations in dividend payout.
What was the observed relationship between liquidity and dividend payout?
The study found a negative correlation between liquidity and dividend payout, suggesting that higher liquidity does not necessarily lead to higher payouts in this sector.
How does firm size affect dividend decisions for the analyzed banks?
Firm size was identified as a significant factor, but it showed a negative influence on dividend payout, possibly because smaller or growth-oriented firms prioritize reinvestment over dividends.
Why did the researcher focus specifically on commercial banks?
The banking sector was chosen due to its importance in the economy and because the volatility of earnings in banking often creates unique challenges for management when setting dividend policies.
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- Joseph Mwanza (Autor:in), 2020, Factors Affecting Dividend Payout In Listed Commercial Banks In Kenya, München, GRIN Verlag, https://www.grin.com/document/977795
