Dividents Practise in Kenya and Effect on the Shares of a Firm

Only available on StudyMode
  • Download(s) : 722
  • Published : November 2, 2010
Open Document
Text Preview
A SURVEY OF DIVIDEND PRACTICES IN KENYA: A CASE STUDY OF QUOTED FIRMS IN THE NAIROBI STOCK EXCHANGE

JUNE 2009

ACKNOWLEDGEMENT
We are grateful to our supervisor, Mr. Luther Otieno for tirelessly guiding us throughout the writing of the project. Indeed, his encouragement and wise counsel greatly inspired us throughout the period we were writing this project. In addition, we thank all the lecturers at the University of Nairobi who taught us during our undergraduate studies. We are also grateful to all our respondents for their co-operation during the data collection stage of our project. Indeed, without their co-operation, it would not have been possible to successfully complete this project. Finally, we thank our colleagues who unrelentlessly supported us throughout the entire project period.

ABSTRACT
The three major decisions of the firm are investment, financing and the dividend decisions. The crucial question in dividend policy is whether dividends have an influence on the value of the firm given a firms investing and financing decision. Many researches have been done on the relevance or irrelevance of dividend policy. In this study, dividend relevance theory was assumed to be true. The objective of this study was to find out the dividend practices followed by firms quoted on the Nairobi Stock Exchange, and specifically the factors managers consider before paying dividends. Primary data, collected by use of a questionnaire, and Secondary data obtained from the NSE library and company libraries was used. Companies that were consistently quoted at the exchange and paid dividends during that period were included in the sample. According to the findings of this study, the determinants of dividends payments are profitability and liquidity, investment opportunity, tax on dividends, firm growth, firm size, loan commitments, agency cost, shareholder preferences, business risk, asset structure, institutional ownership, ownership structure and effects on share prices It was observed that profitability and liquidity, investment opportunities, firm growth, shareholders preferences, business risks are very important factors that determine the amount of dividend to be paid while tax on dividends, loan commitments, effects on share prices, ownership structure, institutional structure, asset structure are fairly important. However, firm size and tax on dividends have been found to be not important.

TABLE OF CONTENTS
1.0 INTRODUCTION1
Background1
Statement of the problem3
Research objectives4
Justification of the research4
LITERATURE REVIEW5
Factors to consider before paying dividends5
Various dividend models16
RESEARCH METHODOLOGY18
Introduction18
Research Design19
Population19
Sample19
Data collection method19
Data Analysis20
DATA ANALYSIS AND INTERPRETATION20
FINDINGS AND CONCLUSIONS38
FINDINGS38
conclusions40
Summary of key findings40
Recommendations/ suggestions for future research40
Limitations of the study41
REFERENCES42
APPENDICES44
LIST OF ABBREVIATIONS
TDTaxes on dividends
P&Lprofitability and liquidity
FGFirm growth
IOInvestment opportunities available
FSFirm Size
LCLoan commitments
ACAgency cost
SPShareholder's preferences
BRBusiness risk
ASAsset structure
IOInstitutional ownership
OSOwnership structure
ESPEffect on share prices
AGMAnnual General meeting
LLiquidity
ASAsset structure

1.0 INTRODUCTION
1.1 Background
Dividends are a distribution of a company’s profits to its shareholders. The amount received as dividends depend on the number of shares one holds. Firms issue equity which takes the form of either common shares or preferred shares. Each preferred share is normally paid a fixed annual dividend. In contrast, dividends obtained from common shares may fluctuate with the firm’s profits. Hence a company must determine the amount of profits to be distributed as dividends to its shareholders and this procedure is more...
tracking img