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AN EMPIRICAL ANALYSIS OF SELECTED FACTORS
AFFECTING DIVIDEND POLICY OF LISTED FIRMS AT THE
NAIROBI SECURITIES EXCHANGE (2000-2010)

Dennis M. Bulla
University of Science & Technology, Kenya

 


ABSTRACT


This paper presents the results of the analysis of factors influencing
dividend policy of publicly listed companies at the Nairobi Securities
Exchange. The study objective was to examine how firms‟ dividend
decisions are influenced by current earnings, dividend yield and firm size. It
analysed empirical panel data of annual earnings per share, dividend yield,
sales and dividend per share of 40 listed companies over a period of ten
years (2000-2010) with 432 observations. This empirical analysis of data
tested the validity of an extended lintners dividend model using data from
the Nairobi Stock Exchange. Regression results indicated that the three
explanatory variables predicted 17% of the variation in dividend payout.
Accounting earnings was the single most significant variable explaining
about 87% of the changes in the dividend decisions of firms listed at the
Securities exchange. Earnings were also significantly positively associated
with dividend payout of companies involved in the study. The other two
variables (dividend yield and size of firm) contributed marginally -less than
1%). However, dividend yield was negatively related to payout although
this was insignificant. Firm size was positively significantly associated with
dividend payout. Overall, the result supports Lintner hypothesis that
current earnings are positively and significantly related to dividend payouts
for companies at the NSE. The study recommends further study based on
market segmentation, and use of other variables influencing dividend policy
to determine if the results will be consistent.


Key words: Dividend policy, Earnings, firm size, dividend Yield. Nairobi
Securities Exchange