Effects of dividend payout on financial performance of listed agricultural firms in Kenya

Abstract

Several Theories have been documented on the relevance and irrelevance of dividend policy. An interesting issue, not yet explored, is the empirical evidence of effects of dividend payout on financial performance. Financial performance has always been considered as a primary indicator of dividend payout ratio. There are various other factors other than financial performance that may also affect dividend decisions of an organization namely growth opportunity, Liquidity, Leverage and Firm Size. Available literature suggests that dividend payout is positively related to profits, liquidity and it has inverse relationship with Firm size, growth and Leverage. This research is an attempt to analyze the effects of dividend payout on financial performance on Kenya Agricultural sector, it focused on identifying effect of dividend payout variables as per literature on financial performance of Agricultural sector in Kenya in existing scenario or not. Statistical techniques of correlation and regression were used to explore the relationship between key variables. Thus, the main theme of the study was to identify the various variables of dividend payout and how they affect financial performance of Agricultural firms in Kenya listed on Nairobi Securities exchange. The study covered the period from 2008-2012. The objective of the study was achieved by trend analysis of dividend payout variables and using multiple regressions because it is the best method to use when dealing with micro-units in the economy. Panel data, cross-sectional time series data from financial reports in NSE libraries and CMA libraries was collected and stored in Microsoft Excel 2007, data analysis was carried out using the Statistical Package for Social Scientists (SPSS) version 17.0. The results show positive relationships between dividend payout and financial performance. The results also show negative associations between dividend payout and firm’s growth, Firm size and leverage. The study further recommends studies on major causes of instability of dividend payout in agricultural firms listed in NSE and contribution of dividend payout to delisting of firms from NSE though it’s a requirement for firm’s to be listed.