Effects of Stable Dividend Policy on Market Value of Listed Firms at Nairobi Securities Exchange

Abstract

Companies listed at the Nairobi Securities Exchange usually record varied market performance due to decisions they make regarding investments, financing and dividends.  Several scholars put across different theories to explain dividend behavior of various markets and firms. Developed markets have been said to pursue dividend policy of stability different from that of developing market firms.  This study attempted to investigate the effect of stable dividend policy on market value of listed firms at the Nairobi Securities Exchange. Effect of stable policy was investigated through the use of ANOVA and regression analysis to gain insight into the importance as value enhancing tools. A panel data of firm-year observation from 38 firms purposively selected from the year 2006 to 2015 was investigated and analyzed using descriptive and inferential statistics at the 0.05 level of significance to understand role of dividend policy in a firm’s market value. Among the key findings of the study are that dividends paid are related strongly (r=0.8) to the market price per share. In addition dividend stability is preferred by investors in the market since the value of shares paying stable dividends is 61.65. Recommendation therefore is; listed firms managers should consider paying dividends to shareholders since it is value enhancing. Further dividend payout should not vary widely on a year to year basis since stability is what investors are keen on. This result mean that dividends convey important information about firms financial prospects and future profitability especially when asymmetric information characterize the market. Thus the study contributes to the debate on dividends role in market value addition and shows how financial managers should view payout of dividends in this market.

Keywords: Dividend Policy, Kenya, Nairobi Securities Exchange

DOI: 10.7176/EJBM/11-30-11

Publication date:October 31^st 2019