EFFECTS OF PROFITABILITY ON DIVIDEND PAYOUT BY COMMERCIAL AND SERVICES FIRMS LISTED IN THE NAIROBI SECURITIES EXCHANGE
Journal Title: European Journal of Business and Social Sciences - Year 2016, Vol 5, Issue 2
Abstract
Many reasons exist why companies pay or fail to pay dividends. Yet figuring out why companies pay dividends and investors pay attention to dividend is the “dividend puzzleâ€. The general objective of this study was to assess effects of profitability on dividend payout by commercial and services firms listed in the Nairobi Securities Exchange (NSE) in Kenya. This study was based on four theories which are dividend relevance theory, dividend irrelevance theory, free cash flows hypothesis and signaling theory. Descriptive research design was applied in this research study. The target population for this study was all the 10 commercial and services firms listed in the NSE as at 31st December 2015. Data for these companies for 10 years (2005 – 2014) was used in the study. Both primary and secondary data was applied in this study. Data was collected from the audited financial statements of the commercial and services firms, NSE and the using a questionnaire survey to the firms and also using secondary information from Capital Markets Authority. The study applied descriptive statistics and panel data analysis model. The study used panel data analysis and applied the fixed effects model. To do the analysis, the researcher applied Stata analysis software. The statistics that were derived from the descriptive, correlation and panel data analysis were presented using tables and figures. Profitability was an insignificant factor in determining dividend payout. The study recommended that though profitability may not hurt the ability of the firm to pay dividends in the short term, continued poor performance will definitely affect payout negatively.
Authors and Affiliations
Mohamed Ali Elmi, Willy Mwangi Muturi
Keywords
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