Abstract:
The study investigated determinants of dividend pay-out among manufacturing firms listed in Nairobi Security Exchange that covered duration of 10 years effective from 2007 to 2016. Secondary data which comprised of audited financial statements was obtained from the website of the Capital Market Authority. Purposive sampling technique was applied to select 7 firms out of the 10 listed manufacturing firms. Dividend Pay-out measured by dividend per share over earnings per share is the dependent variable while Profitability, Liquidity and Leverage were predictor variables being investigated while Firm size was applied as a Moderating variable. Random Effect Tobit Model is applied in regression due to its suitability to accommodate zero censored values constituted among dependent variable. In addition, Descriptive Statistics is used for analytical purposes on data sampled in aspect of mean, mode and variance. Findings of the research reveals that Liquidity whose p-value is 0.097 hence greater than 0.05 (p > 0.05) insignificantly influences dividend pay-out. However, Leverage and Profitability do have p-values of 0.002 and 0.003 respectively which is less than 0.05, implying they significantly determine how manufacturing firms pay dividend to investors. Moderating variable Firm size increases precision of significance of the model from 0.15 to 0.02 hence considered as significant determinants of dividend pay-out. Based on this outcome, management ought to not only exercise due diligence when borrowing to prevent an entity from liquidation but also invest in noble projects that are geared towards profit maximization as empirically proven by the study. Future research in this context should consider inclusion of more independent variables like Earnings per share, like business risk, earnings per share, taxation, ownership in so doing accuracy is enhanced on proportionality of influence per variable on dividend pay-out. However, component of entity in terms of sector and economic empowerment of a region is paramount since it has a bearing on the end results of the entity which obvious play a vital role on how dividend is issued as alluded by Amarjit et al., (2010). Finally, the outcome of this study will enable potential investors understand the parameters to consider while making decision to invest in Kenya’s manufacturing firms not forgetting insight to management on impact of dividend pay-out to entity reputation as proclaimed in signalling theory.
