RELATIONSHIP BETWEEN DIVIDEND POLICY AND FINANCIAL PERFORMANCE OF MANUFACTURING AND ALLIED FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE
George Murage - Master of Business Administration, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Florence Emba - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
The performance of many manufacturing firms have not been performing well as compared to other sectors. Manufacturing sector faces a numbers of challenges. These include; high cost of production affects both investment decisions and competitiveness of Kenyan products; illicit trade characterized by counterfeits, substandard, or un-taxed goods; high cost of living that drives up wage costs, reduces consumer effective demand and drives inflation; inadequate government support for local produce; weak linkages with local supplies; and inadequate or weak negotiation skills in regional trade agreements. Dividend policy is described as the regulations and guidelines that a company uses to decide to make dividend payments to shareholders. Financial performance as the measurement of the outcome of firm strategies, policies and operations in monetary terms. These results are reflected in the firm return on assets and return on investments. The study was guided by the following specific objectives; To find out the effect of dividend payout ratio, dividend stability, dividend yield and residual dividend policy on financial performance of manufacturing firms listed at NSE. Secondary data was collected from only the 9 manufacturing firm listed at NSE. Theories such as dividend irrelevance theory, signaling theory and agency costs theory were reviewed. The Financial Statement Approach (FSA) was used. This approach involves collecting secondary data from the financial statements and notes to financial statements (income statement and statement of financial position), annual reports and disclosures provided by CBK, CMA as well as data from the NSE on manufacturing firms. The period 2014 to 2018 constitute the time with the latest data and therefore most relevant to the current study. Descriptive analysis including maximum, minimum, means and standard deviations were analyzed. Normality tests confirmed that data was normally distributed since the values for kurtosis and skewness were neither below -0.96 nor above +0.96. Multicollinearity test was further done by use of Variance Inflation Factor (VIF) and values were below 10 indicating existence of multicollinearity problem. Breusch- Pagan and Koenker values were 0.010 and 0.948 indicating homoscedasticity since the values were more than 0.05. The study showed r-squared value was 0.463, which indicate that nearly 46% of the total variations in the financial performance of manufacturing and allied firms listed at NSE. The R coefficient of the correlation that shows the relationship that exist among the research variables was 0.680 which implies a strong positive correlation exist among the study variables as captured by the study variables. The findings further indicated that the model had a F-tests of 0.861 which was statistically significant at 0.1% confidence level. The study concluded that there is weak positive and significant effect of Payout Dividend Ratio, Stability Dividend and residual dividend ratio on performance whereas Dividend yield had a weak negative and significant effect on performance of manufacturing firms listed at NSE. The study recommended that manufacturing firms managements should ensure that they come up with an optimal dividend policy since the payment of dividend may affect their financial performance.
