The Effect of Dividend on the Value of Kenyan Firms Listed in the Nairobi Stock Exchange

Abstract

The purpose of this study was to determine the effect of dividend policies on the value of Kenyan firms listed in the Nairobi Stock Exchange (NSE). The study was conducted in Nairobi and it consisted of fifteen firms purposively selected from each of the five sectors of NSE. The study used both qualitative and quantitative approach and data was collected through questionnaires for primary data and desk review for secondary data. In this era of competitive advantage where firms want to raise funds from the general public for investment purpose and with the increased initial Public Offering (IPO) in the stock exchange, it is necessary to fully understand every key financial variable, which can affect the value of the firm. The shareholders require a return on their investment. They therefore need to know which return they are likely to receive, whether dividend income or capital gains. Furthermore the shareholders have to fully understand why they can receive either of them. The study found out that there is no relationship between the dividend policy of the firm and its value. Second, most firms in Kenya follow non- constant dividend policy ration. Third, investors in the NSE expect to be paid a given return on their investment and this return can be eithe in the form of dividends or capital gains. Fourth, the firm consider various factors in payment of dividends such as legal considerations shareholders expectations and availability of investment opportunities