CAPITAL STRUCTURE AND DIVIDEND PAYOUT DECISIONS AMONG LISTED FIRMS AT NAIROBI SECURITIES EXCHANGE, KENYA
Sahra Yasin - Master of Business Administration, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Joshua Matanda Wepukhulu - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Capital structure decisions are considered key in driving the firm’s dividend pay-out which in turn ensures continuity and growth of a business. The success of any organization in the world depends highly on capital structure decisions as they involve a sizeable amount of shareholder funds. Those kind of decisions become even more complicated, if the atmosphere in which the company operates in is highly unstable. The dividend payout of firms has continued to shrink over the past decade, driven principally by poor investment and financing decisions in various industries. The study assessed the influence of capital structure on dividend payout decisions among listed firms at Nairobi Securities Exchange. The specific objectives were; to determine the influence of long term debt capital on dividend pay-out decisions among firms listed at Nairobi Securities Exchange, Kenya, to ascertain the influence of internal equity capital on dividend pay-out decisions among firms listed at Nairobi Securities Exchange, Kenya and to determine the influence of external equity capital on dividend pay-out decisions among firms listed at Nairobi Securities Exchange, Kenya. The timespan was 5year period between 2014 and 2018. The study was supported by Modigliani and Miller Capital structure theories, trade-off theory, pecking order theory and agency theory. A census of all the 64 firms listed at NSE as at 2018 constituted target population. The study utilized secondary data which were extracted from the audited financial statements, annual reports and firm’s publications by use of a document review guide. The statistical analysis produced both descriptive statistics and inferential statistics. The results of the data analysis were captured using tables. The study established that there was a negative correlation between long term debt and dividend pay-out decisions among firms listed at Nairobi Securities Exchange, Kenya. The exploration established that there was a medium positive correlation between internal equity capital and dividend payout decisions. The conclusion was that an increase in internal equity would lead to an increase in dividend payout decision to a significant extent. The study determined that there was a positive correlation between external equity and dividend payout decisions. The study hence recommends that long term debts should be maintained a low level to prevent a decrease in the dividend payout decision. Firms should raise capital first from earnings then debt and firms also should prefer internal finance first before considering external finance. Profitable firms can use earnings to fund investments and hence less need for long term. The listed firms should observe their policies dealing with the equity to improve on their dividend payout decisions. Further studies could focus on a wide range of predictors and scope.
