DETERMINANTS OF DIVIDEND POLICY AMONG QUOTED COMPANIES IN KENYA

Jacob Obed Indika

Dividend policy have been the subject of many studies for many years from the past up to date, yet remains one of the greatest enigmas in modern finance. The challenges have been to establish the exact factors that determine dividend policy. Despite many studies on the subject in developed economies, few studies have been done on the third world whose socio-cultural and economic background differ. It’s against this backdrop that this study was conceived with the objective of establishing the determinants of dividend policy in the quoted companies in Kenya under a new regime in the NSE which is the main primary capital market. The study adopted a descriptive and correlation research survey on population of firms listed in Nairobi Securities Exchange in Kenya to establish the relationship between the study variables. A sample of 47 companies in the NSE which had traded consistently from 2007 to 2011 was taken for the study. The study drew information from secondary data on dividends per share, Earnings per Share, Profit before tax, taxation, institutional holding, market prices, equity capital, book value per share, current assets and current liabilities, from the companies’ Financial Statements and other related sources available at the CMA Library and NSE database. Thereafter, data was analyzed using descriptive statistics and inferential statistics by Excel and SPSS version 20 was used to establish the relationship between dividend policy and regressed against five independent variables namely; profitability, clientele effect, taxation, investment opportunities and liquidity. A multi-regression model was established and the results presented in tables. The study results revealed that profitability and clientele effect significantly influenced the dividend policies of the quoted companies while investment opportunities were found to be less positively related to dividend policy in agreement with previous studies. Taxation was found to be positively related to dividend policy, contrary to the research expectations. The study concluded that profitability was a major determinant of dividend policy while liquidity least influenced dividend policy. The study recommends the following improvements done to increase dividend payments, firstly, policy makers should enact legislations aimed at creating conducive business environments through review of Income Tax Act, Value Added Tax review capital gain tax and by withholding taxes on dividends and policies to compensate investors against prolonged non-payment of dividends by profitable companies. Further to these, strengthening of the CMA to enhance proper corporate governance and ensuring good dividend policies are in place so as to reduce the agency problems. But even still further studies ought to be done to enrich dividend policy on behavioral aspects, taxation, and dividend payout of unlisted companies, regulated and unregulated industries, dividend repatriation and the impact of inflation, interest rates and legal requirement on dividend policy