Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya

Margaret Akinyi Olang; Grace Melissa Akenga; James Kamau Mwangi

doi:doi:10.11648/j.sjbm.20150305.18

| Peer-Reviewed

Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya

Margaret Akinyi Olang, Grace Melissa Akenga, James Kamau Mwangi

Published in Science Journal of Business and Management (Volume 3, Issue 5)

Received: 12 August 2015 Accepted: 22 August 2015 Published: 2 September 2015

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Dividend decision is a critical finance function since it involves determining the amount distributed to shareholders as earnings or the amount to reinvest internally. The determination of dividend pay-out is influenced by the liquidity position of the firm but the extent to which liquidity affects the dividend pay-out still remains a puzzle since most empirical studies conducted have reported inconsistent results and no universally accepted explanation for companies with adequate liquidity have observed uniform dividend payment behaviour. It is in this context that the study was set out to determine the effect of liquidity on dividend pay-out of a firm. The objectives of the study were; to determine the effect of profitability, cash flows and working capital on the firms’ dividend pay-out decisions. The study employed causal comparative research design on a target population of 61 firms listed at the NSE. Purposive sampling was used to select 30 firms which consistently paid dividends from the year 2008 to 2012. Data analysis was done using descriptive and inferential statistics. The study revealed that profitability plays a major role in dividend pay-out because of the higher coefficient as compared to cash flows and working capital and consequently the companies which posted higher profits translated this to higher dividends paid out to investors. The study recommends that firms should ensure that profits are stable, cash flows freely flow into the firm and working capital is efficiently managed so as to increase the firms’ dividend pay-out. The results would provide information to managers to determine an optimal dividend pay-out that would maximise the company’s stock price and thus lead to maximisation of shareholders wealth. The study also forms a basis for further research and adds knowledge to the existing body.

Published in	Science Journal of Business and Management (Volume 3, Issue 5)
DOI	10.11648/j.sjbm.20150305.18
Page(s)	196-208
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Cash Flows, Dividend, Liquidity, Dividend Pay-out, Profitability, Securities Exchange, Working Capital, Shareholder

References

[1]	Ahmed, H. & Javid, A. (2009). The Determinants of Dividend Policy in Pakistan (Evidence from Karachi Stock Exchange, Non Financial Listed Firms); International Research Journal of Finance and Economics; ISSN 1450-2887 Issue 25.
[2]	Albercht, W. & Stice, J. (2008). Financial Accounting. Manson,OH: Thomson/South-Western.
[3]	Alli, K.; Khan, A. & Ramirez, G. (1993). Determinants of Dividend Policy: A Factorial Analysis. Finance Review 28, 523-47.
[4]	Al-Malkawi, H. (2007). Determinants of Corporate Dividend Policy in Jordan: An Application of the Tobit Model . Journal of Economics and Administrative Sciences 23(2) , 44-70.
[5]	Amidu, M. & Abor, J. (2006). Determinants of Dividend Policy Ratios in Ghana. Journal of Risk Finance; 7: 136-45.
[6]	Anil, K. & Kapoor, S. (2008). Determinants of Dividend Policy Ratios: A Study of Indian Information Technology Sector. International Research Journal in Finance Economics 15: 1-9.
[7]	Anupam, M. (2012). An Empirical Analysis of Determinants of Dividend Policy - Evidence from the UAE Companies. Global Review of Accounting and Finance Vol. 3.No. 1. 18-31.
[8]	Baker, M. & Wurgler, J. (2004). A Catering Theory of Dividends. Journal of Corporate Finance Vol. 2. No. 2. 5-12.
[9]	Banerjee, B. (2008). Fundamentals of Financial Management. New Delhi: Prentice-Hall.
[10]	Bangkok Bank. (2008). Annual report. Bangkok: Bangkok Bank.
[11]	Banerjee, S.; Gatchev, V. & Spindt, P. (2007). Stock Market Liquidity and Firm Dividend Policy. Journal of Financial and Quantitative Analysis, 42(2), 369-384.
[12]	Besley, S. & Brigham, E. (2008). Essentials of Managerial Finance. Manson: OH: Thomson/South-Western.
[13]	Brealey, R. & Myers, S. (2002). Financing and Risk Management. New York: McGraw-Hill.
[14]	Cooper, D. & Schindler, P. (2003). Business Research Methods (8ed.). Boston: MA: McGraw Hill.
[15]	Fama, E. F. & Babiak, H. (1968). 'Dividend Policy An Empirical Analysis'. Journal of American Statistical Association, 63, 1132-1161.
[16]	Eljelly, A.M. (2004). Liquidity, Profitability Trade-off: An Empirical Investigation in an Emerging Market. International Journal of Commerce and Management; 14:46-51.
[17]	Gill, B & Tibrewala, R. (2010). Stock Market Liquidity and Firm dividend policy. The Open Business Journal, Vol. 3, pp 8-14.
[18]	Gordon, M. J. (1963). The investment, Financing and Valuation of Corporation.Irwin: McGraw Hill Co.
[19]	Hair, B. & Tatham, R. (2010) Multivariate Data Analysis (7ed). New York: Pearson Publishers.
[20]	Kasomo, D. (2006). Research Methods in Humanities and Education. Njoro: Egerton University Press.
[21]	Kathuri, J. & Pals, A. (1993). Introduction to Educational Research.Njoro: Egerton University Educational Media Centre.
[22]	Kombo, D. & Tromp, D. (2006). Guidelines to Proposal and Thesis Writing. Nairobi: Pauline Publishers Africa.
[23]	Lintner, J. (1956). The Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes. American Economic Review, 46, 97-113.
[24]	Lintner, J. (1962). Dividends, Earnings, Leverage, Stock Prices and Supply of Capital to Corporations. The Review of Economics and Statistics 64, 243-269.
[25]	Litzenberger, R. H. & Ramaswamy K. (1979). The Effect of Personal Taxes and Dividends on Capital Asset Prices, Journal of Financial Economics 7, 163-95.
[26]	Liu, S. & Hu, Y. (2005). Empirical Analysis of Cash Dividend Payment in Chinese Listed Companies. Nature and Science, 3(1), 65-70.
[27]	Mahapatara, R. P. & Sahu, P.K (1993).Analysis of Determinants of Corporate Dividend Behaviour in India, an Economic Analysis Decision 20. 1-22.
[28]	Miller, M. H. & Rock, K. (1985). Dividend Policy under Asymmetric Information. Journal of Finance, 40, 1031-1051.
[29]	Modigliani, F. & Miller, M. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), 411-428.
[30]	Mugenda, O. M. & Mugenda, A.G. (2005). Research Methods: Quantitative and Qualitative Approaches. Nairobi: Acts press.
[31]	Nikolai, L. A.; Bazley, D.J. & Jones, J. P. (2010). Intermediate Accounting (11ed.). Manson, Australia: South-Western.
[32]	NSE, (2009). NSE Handbook. Retrieved on 17^th December 2009 from http:// www.nse.co.ke.
[33]	NSE, (2010). NSE Handbook. Retrieved on 20^th December 2009 from http:// www.nse.co.ke.
[34]	NSE, (2011). NSE Handbook. Retrieved on 31^st December 2009 from http:// www.nse.co.ke.
[35]	NSE, (2012). NSE Handbook. Retrieved on 22^nd December 2009 from http:// www.nse.co.ke.
[36]	NSE, (2013). NSE Handbook. Retrieved on 23^rd December 2009 from http:// www.nse.co.ke.
[37]	Okpara, G. C. (2010). Diagnosis of the Determinants of Dividend Pay-Out Policy in Nigeria: Factor of Analytical Approach. American Journal of Scientific Research ISSN 1450-223X Issue 8; PP 57-67.
[38]	Orodho, J. (2009). Elements of Education and Social Science Research Methods. Maseno: Kanezja Publishers.
[39]	Pandey, I. (2005). Financial Management. New Delhi: Vikas Publishing House.
[40]	Ross, S. A.; Westerfield, R. W. & Jordan, B. D. (2011). Fundamentals of Corporate Finance (7^th ed.). Irwin: Mc-Graw Hill.
[41]	Rozeff, M. S. (1982). Growth, Beta and Agency Costs as Determinants of Dividend payout Ratios, The Journal of Financial Research 5, 249-259.
[42]	Scott, D. L. (2003). An A to Z Guide to Investment Terms for Today's Investor. Journal of Financial Economics, 12,230-250.
[43]	Schneeman, A. (2010). The Law of Corporations and other Business Organisations. Clifton Park, New York: Delmar Cengage Learning.
[44]	Sharan, V. (2009). Theories Explaining Fundamentals of Financial Management (2^nd ed). Delhi, India: Pearson Education.
[45]	Walter, J. (1963). Dividend Policy: Its Influence on the Value of the Enterprise. Journal of Finance, 18 (2), 280-291.
[46]	Watson, D. & Head, A. (2007). Corporate Finance: Principles and Practice (4^th ed). New York: Pearson Education.
[47]	Weiner, E. (2006). The New Liquidity Paradigm: Focus on Working Capital. Journal of Financial Economics, 32, 145 – 160.
[48]	Weston, F. & Brigham, E. (1986). Management Finance (9^th Ed). New York: The Dryden Press.

Cite This Article

Plain Text BibTeX RIS

APA Style

Margaret Akinyi Olang, Grace Melissa Akenga, James Kamau Mwangi. (2015). Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya. Science Journal of Business and Management, 3(5), 196-208. https://doi.org/10.11648/j.sjbm.20150305.18

Copy | Download

ACS Style

Margaret Akinyi Olang; Grace Melissa Akenga; James Kamau Mwangi. Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya. Sci. J. Bus. Manag. 2015, 3(5), 196-208. doi: 10.11648/j.sjbm.20150305.18

Copy | Download

AMA Style

Margaret Akinyi Olang, Grace Melissa Akenga, James Kamau Mwangi. Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya. Sci J Bus Manag. 2015;3(5):196-208. doi: 10.11648/j.sjbm.20150305.18

Copy | Download

@article{10.11648/j.sjbm.20150305.18,
  author = {Margaret Akinyi Olang and Grace Melissa Akenga and James Kamau Mwangi},
  title = {Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya},
  journal = {Science Journal of Business and Management},
  volume = {3},
  number = {5},
  pages = {196-208},
  doi = {10.11648/j.sjbm.20150305.18},
  url = {https://doi.org/10.11648/j.sjbm.20150305.18},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjbm.20150305.18},
  abstract = {Dividend decision is a critical finance function since it involves determining the amount distributed to shareholders as earnings or the amount to reinvest internally. The determination of dividend pay-out is influenced by the liquidity position of the firm but the extent to which liquidity affects the dividend pay-out still remains a puzzle since most empirical studies conducted have reported inconsistent results and no universally accepted explanation for companies with adequate liquidity have observed uniform dividend payment behaviour. It is in this context that the study was set out to determine the effect of liquidity on dividend pay-out of a firm. The objectives of the study were; to determine the effect of profitability, cash flows and working capital on the firms’ dividend pay-out decisions. The study employed causal comparative research design on a target population of 61 firms listed at the NSE. Purposive sampling was used to select 30 firms which consistently paid dividends from the year 2008 to 2012. Data analysis was done using descriptive and inferential statistics. The study revealed that profitability plays a major role in dividend pay-out because of the higher coefficient as compared to cash flows and working capital and consequently the companies which posted higher profits translated this to higher dividends paid out to investors. The study recommends that firms should ensure that profits are stable, cash flows freely flow into the firm and working capital is efficiently managed so as to increase the firms’ dividend pay-out. The results would provide information to managers to determine an optimal dividend pay-out that would maximise the company’s stock price and thus lead to maximisation of shareholders wealth. The study also forms a basis for further research and adds knowledge to the existing body.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya
AU  - Margaret Akinyi Olang
AU  - Grace Melissa Akenga
AU  - James Kamau Mwangi
Y1  - 2015/09/02
PY  - 2015
N1  - https://doi.org/10.11648/j.sjbm.20150305.18
DO  - 10.11648/j.sjbm.20150305.18
T2  - Science Journal of Business and Management
JF  - Science Journal of Business and Management
JO  - Science Journal of Business and Management
SP  - 196
EP  - 208
PB  - Science Publishing Group
SN  - 2331-0634
UR  - https://doi.org/10.11648/j.sjbm.20150305.18
AB  - Dividend decision is a critical finance function since it involves determining the amount distributed to shareholders as earnings or the amount to reinvest internally. The determination of dividend pay-out is influenced by the liquidity position of the firm but the extent to which liquidity affects the dividend pay-out still remains a puzzle since most empirical studies conducted have reported inconsistent results and no universally accepted explanation for companies with adequate liquidity have observed uniform dividend payment behaviour. It is in this context that the study was set out to determine the effect of liquidity on dividend pay-out of a firm. The objectives of the study were; to determine the effect of profitability, cash flows and working capital on the firms’ dividend pay-out decisions. The study employed causal comparative research design on a target population of 61 firms listed at the NSE. Purposive sampling was used to select 30 firms which consistently paid dividends from the year 2008 to 2012. Data analysis was done using descriptive and inferential statistics. The study revealed that profitability plays a major role in dividend pay-out because of the higher coefficient as compared to cash flows and working capital and consequently the companies which posted higher profits translated this to higher dividends paid out to investors. The study recommends that firms should ensure that profits are stable, cash flows freely flow into the firm and working capital is efficiently managed so as to increase the firms’ dividend pay-out. The results would provide information to managers to determine an optimal dividend pay-out that would maximise the company’s stock price and thus lead to maximisation of shareholders wealth. The study also forms a basis for further research and adds knowledge to the existing body.
VL  - 3
IS  - 5
ER  -

Copy | Download

Author Information

Margaret Akinyi Olang

Department of Business Administration, Chuka University, Chuka, Kenya
Grace Melissa Akenga

Department of Business Administration, Chuka University, Chuka, Kenya
James Kamau Mwangi

Department of Business Administration, Chuka University, Chuka, Kenya

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Margaret Akinyi Olang, Grace Melissa Akenga, James Kamau Mwangi. (2015). Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya. Science Journal of Business and Management, 3(5), 196-208. https://doi.org/10.11648/j.sjbm.20150305.18

Copy | Download

ACS Style

Margaret Akinyi Olang; Grace Melissa Akenga; James Kamau Mwangi. Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya. Sci. J. Bus. Manag. 2015, 3(5), 196-208. doi: 10.11648/j.sjbm.20150305.18

Copy | Download

AMA Style

Margaret Akinyi Olang, Grace Melissa Akenga, James Kamau Mwangi. Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya. Sci J Bus Manag. 2015;3(5):196-208. doi: 10.11648/j.sjbm.20150305.18

Copy | Download

@article{10.11648/j.sjbm.20150305.18,
  author = {Margaret Akinyi Olang and Grace Melissa Akenga and James Kamau Mwangi},
  title = {Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya},
  journal = {Science Journal of Business and Management},
  volume = {3},
  number = {5},
  pages = {196-208},
  doi = {10.11648/j.sjbm.20150305.18},
  url = {https://doi.org/10.11648/j.sjbm.20150305.18},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjbm.20150305.18},
  abstract = {Dividend decision is a critical finance function since it involves determining the amount distributed to shareholders as earnings or the amount to reinvest internally. The determination of dividend pay-out is influenced by the liquidity position of the firm but the extent to which liquidity affects the dividend pay-out still remains a puzzle since most empirical studies conducted have reported inconsistent results and no universally accepted explanation for companies with adequate liquidity have observed uniform dividend payment behaviour. It is in this context that the study was set out to determine the effect of liquidity on dividend pay-out of a firm. The objectives of the study were; to determine the effect of profitability, cash flows and working capital on the firms’ dividend pay-out decisions. The study employed causal comparative research design on a target population of 61 firms listed at the NSE. Purposive sampling was used to select 30 firms which consistently paid dividends from the year 2008 to 2012. Data analysis was done using descriptive and inferential statistics. The study revealed that profitability plays a major role in dividend pay-out because of the higher coefficient as compared to cash flows and working capital and consequently the companies which posted higher profits translated this to higher dividends paid out to investors. The study recommends that firms should ensure that profits are stable, cash flows freely flow into the firm and working capital is efficiently managed so as to increase the firms’ dividend pay-out. The results would provide information to managers to determine an optimal dividend pay-out that would maximise the company’s stock price and thus lead to maximisation of shareholders wealth. The study also forms a basis for further research and adds knowledge to the existing body.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Effect of Liquidity on the Dividend Pay-out by Firms Listed at the Nairobi Securities Exchange, Kenya
AU  - Margaret Akinyi Olang
AU  - Grace Melissa Akenga
AU  - James Kamau Mwangi
Y1  - 2015/09/02
PY  - 2015
N1  - https://doi.org/10.11648/j.sjbm.20150305.18
DO  - 10.11648/j.sjbm.20150305.18
T2  - Science Journal of Business and Management
JF  - Science Journal of Business and Management
JO  - Science Journal of Business and Management
SP  - 196
EP  - 208
PB  - Science Publishing Group
SN  - 2331-0634
UR  - https://doi.org/10.11648/j.sjbm.20150305.18
AB  - Dividend decision is a critical finance function since it involves determining the amount distributed to shareholders as earnings or the amount to reinvest internally. The determination of dividend pay-out is influenced by the liquidity position of the firm but the extent to which liquidity affects the dividend pay-out still remains a puzzle since most empirical studies conducted have reported inconsistent results and no universally accepted explanation for companies with adequate liquidity have observed uniform dividend payment behaviour. It is in this context that the study was set out to determine the effect of liquidity on dividend pay-out of a firm. The objectives of the study were; to determine the effect of profitability, cash flows and working capital on the firms’ dividend pay-out decisions. The study employed causal comparative research design on a target population of 61 firms listed at the NSE. Purposive sampling was used to select 30 firms which consistently paid dividends from the year 2008 to 2012. Data analysis was done using descriptive and inferential statistics. The study revealed that profitability plays a major role in dividend pay-out because of the higher coefficient as compared to cash flows and working capital and consequently the companies which posted higher profits translated this to higher dividends paid out to investors. The study recommends that firms should ensure that profits are stable, cash flows freely flow into the firm and working capital is efficiently managed so as to increase the firms’ dividend pay-out. The results would provide information to managers to determine an optimal dividend pay-out that would maximise the company’s stock price and thus lead to maximisation of shareholders wealth. The study also forms a basis for further research and adds knowledge to the existing body.
VL  - 3
IS  - 5
ER  -

Copy | Download