Effect of Firm Value on Dividend Policy of Public Listed Non-Financial Firms in Kenya
Abstract
The controversy on the link between firm value and dividend policy of firms has remained unresolved for some decades. Studies on relationship between firm value and dividend policy of firms in both developed and developing economies have provided mixed findings such that it is not clear how value affects dividend policy in a developing country like Kenya. The general objective was to analyze the effect of firm value on dividend policy of public listed non- financial firms in Kenya. The study adopted descriptive research design. The target population of the study was 36 listed non- financial firms in the NSE. The study adopted a census approach because of the small number of non-financial firms in the NSE. The study collected secondary data from NSE annual reports. Model summary results revealed that market value of equity, book value of assets and book value of debt explain 54.37% of the variation in dividend payout policy. Regression of coefficients results showed that market value of equity and dividend payout policy is positively and significantly related. The results also revealed that book value of assets and dividend payout policy is positively and significantly related. The results revealed that book value of debt and dividend payout policy is positively but insignificantly related. Based on the findings above, the study concluded that both firm market value and book value of assets has a significant effect on dividend payout policy of public listed non-financial firms in Kenya while book value of debt has an insignificant effect on dividend payout policy of publicly listed non-financial firms in Kenya. The study recommends that the public listed non-financial firms should monitor the liquidity and market capitalization positions of firms in their portfolios in order to ensure sound financial decisions that would guarantee a stable growth in client wealth and hence achieve enhanced risk positions when executing trades. The study also recommends the expansion of public listed non-financial firms’ asset base.
Key Words: firm market value, book value of assets, book value of debt, dividend policy, non-financial firms
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