FIRM CHARACTERISTICS AND DIVIDEND PAYOUT OF INSURANCE COMPANIES IN KENYA
FIRM CHARACTERISTICS AND DIVIDEND PAYOUT OF INSURANCE COMPANIES IN KENYA
Geofrey Osiemo Mogire - Master of Science in Finance Student, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Joshua Bosire - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Richard Ngali, PhD, CFE - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Dividend payout is a significant financial aspect since it entails the determination of the sum distributed to the stockholders as return on invested capital to increase the size of the firm. In Kenya, the dividend payout performance has experienced a decline, suggesting unsuccessful strategies implemented by management, despite the government's expectations for the insurance industry to contribute significantly to the country's economic growth. This calls for a study to be done on; what are the firm characteristics and dividend payout of insurance companies in Kenya? Therefore, the main objective of the study was to establish firm characteristics and dividend payout of insurance companies in Kenya. The specific objectives of the study were to find out the effect of firm leverage, firm liquidity, firm profitability and firm size on dividend payout in insurance companies in Kenya. The study was informed by dividend relevance theory, dividend irrelevance, the signaling theory and the bird-in-the-hand theory. The study used a descriptive research design. The population of interest in this study was 55 insurance companies in Kenya. The study collected secondary data from authoritative and official sources such as the Insurance Regulatory Authority financial annual reports. Panel regression model was used as a data analysis method for the study. The data was analyzed using both descriptive and inferential statistics such as panel regression and ANOVA. The results were represented on table and graphs. The study found that there was a growing trend in the dividend payout. The regression analysis results show that the main effect of dividend payout policies when regressed alone is significant in predicting growth of insurance companies. The study concludes that the insurance companies have been recording growth in net income, dividends paid, and cash flows. The dividend payout of the insurance companies in Kenya increased during the period under investigation. There was a general upward trend in firm leverage, firm liquidity, firm profitability and firm size. In addition, fixed dividends paid and the dividend payout increased slightly during the period. There is a correlation between the sizes of the dividend and the cost of capital, which has an effect on the entire equity share valuation. The study recommends the organizational policies regarding total debt and shareholder's equity should consider the investment policy and financing policy for each stage in firm life cycle. The study recommends the insurance firms to clearly communicate to shareholders about the tradeoff between high dividend payout rate and performance, so that shareholders will willingly accept the low dividend rate, retaining profit as capital for future development of the insurance companies, the insurance companies should uncover ways of increasing their assets base .Insurance companies should therefore take into account the factors like country characteristic, development period, and on total assets. Further study could be conducted in other financial firms with a broader view of the East African Community.
