DIVIDEND POLICY AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES LISTED IN NAIROBI SECURITIES EXCHANGE, KENYA
DIVIDEND POLICY AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES LISTED IN NAIROBI SECURITIES EXCHANGE, KENYA
Kiruja Vincent Murimi - Department of Accounting and Finance, Kenyatta University, Kenya
John Mungai - Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
The profit of a firm can be paid out as dividends or be re-invested. There are a number of reasons why the firm should pay dividends or not. Investors pay attention to dividends and therefore the dividend policy behaviour is still an issue of concern in finance literature. Whereas some of the insurance companies have been performing well in terms of assets growth and profitability, there are other listed insurance companies whose return on assets has been dwindling over the years under study. This was partly attributed to poor dividend policy. The research aimed at filling the research gap by establishing the importance of effective dividend policy and the link existing between dividend policy and insurance companies’ financial performance. The goal guiding the study are; to determine the influence of dividend payout ratio, retained earnings, and dividend yield on financial performance of insurance companies listed in the Nairobi Securities Exchange. A descriptive design was adopted. Secondary data from4financial4statements of the Nairobi Securities Exchange listed insurance companies4for4the period 2013-2018 was collected. Descriptive statistics and regression model using SPSS software version 2 was used for the data analysis. The study concluded that dividend payout does not affect the performance of insurance companies listed in Nairobi securities exchange, retained earnings has a positive significant effect on financial performance of insurance companies listed in Nairobi securities exchange, and that dividend yield has a positive effect on1 the performance of insurance companies listed in Nairobi Securities Exchange in financial terms. The study recommends that Insurance companies listed in Nairobi securities exchange should ensure that they have a good and robust dividend policy in place that can enhance their level of profitability and also attract investments. The study recommends that Insurance companies listed in Nairobi Securites Exchange should develop policies and laws governing dividend payment and should be strengthened and enforced to ensure a more frequent dividend payment in order to increase their market values through share price increases. It is also recommended that and investment policy should be developed and implemented; this will ensure that the management is not left to decide on how to use the little surplus left but would rather be guided by the investment policy. The board of directors of insurance firms should be prudent in declaring dividends as higher dividend yield could mean that the share price is underpriced which could affect future dividends.
