The Effect of Dividend Policy on the Value of Firms Listed at the Nairobi Securities Exchange

Anyim F Odinya, Barasa Joseph


Purpose – The study sought to determine the effect of dividend policy on the value of firms listed at the Nairobi Securities Exchange.

Methodology – This study adopted a quantitative approach that was modeled as a descriptive survey. Secondary data was collected in the form of published financial reports between years 2012 – 2016 from the Nairobi Securities Exchange (NSE) library. The financial reports were for thirty randomly sampled companies listed at NSE. This data was analysed by use of descriptive analysis, correlation analysis and multiple regression analysis which would effectively test the relationship between the dividend policies of the companies and their value.

Findings – The results of the study showed that there is a strong positive correlation between dividend policy and firm value such that an increase in dividends increases the firm value and vice versa. A regular dividend policy, residual dividend policy and firm size have a positive significant relationship with a firm’s value. The study also found that irregular dividend policy, non-dividend policy and investment positively influence the value of the firm but they have no significant effect thereon.

Implications – Regular and stable dividend policies produce certainty for investors that they get regular income for their investments. Firms that adopt the above dividend policies have a benchmark for doing well and are able to accumulate or raise a large base of capital at a very low cost. On the other hand, firms that adopt irregular and non-dividend policies do not attract investors since they do not attach much importance to them given that they are focussed on the dividends that they get. Hence, management of publicly listed firms should be keen to adopt regular and stable dividend policies.

Value – The outcome of this study will to add to the available knowledge in this discipline, and it will also enable scholars to carry out further research by identifying information gaps in this study. The study will also be of interest to the management of publicly quoted companies, in determining the impact of the policy of dividends on the firm value, so as to make very crucial financial choices, to enhance performance of shares at NSE, thus increasing investors’ confidence. Regulators and government agencies will be able to formulate good policies related to dividends and taxes seeing that they have a fundamental role in regulating the industry as well as protecting investors.  The study will be guide investors to determine the value of firms based on their dividend policies and thereby make informed investment decisions.



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