EFFECT OF DIVIDEND POLICY ON SHAREHOLDERS’ WEALTH OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Abstract

The overall objective of this study was to appraise the effect of dividend policy on shareholders’ wealth of commercial banks listed on the Nairobi Securities Exchange (NSE). The specific objectives were to determine the effect of a fixed rate dividend policy, fluctuating dividend payout ratio, hybrid dividend policy, residual dividend payment, and stock dividend policy on shareholders’ wealth of commercial banks listed at NSE, Kenya. The dividend irrelevance theory, information signaling effect theory, bird in the hand theory, and tax preference theory were evaluated to reinforce the variables that were studied in this research. The target population encompassed the NSE-listed 11 commercial banks where the top management personnel from each of the listed commercial banks were selected as the respondents at a sample size of 86 for primary data collection using a questionnaire. ANOVA, multiple regression, and Pearson correlation analysis were utilized as the inferential statistics for additional analysis. This study utilized descriptive research design to interpret the effects of dividend policy on shareholders’ wealth. The regression results for a Fixed Rate Dividend Policy, Fluctuating Dividend Payout Rate, Hybrid Dividend Policy, Residual Dividend Payment, and Stock dividend policy had a significant and positive effect on Shareholders’ Wealth. The study recommends that a flexible hybrid dividend policy that can be embraced by the different stakeholders in the companies should be established and management should continue to steadily raise earnings, cash flow, and dividend payments; when determining a firm's optimal dividend policy, it is important to take its growth trajectory into account, and when creating a dividend policy, commercial banks should take into consideration several factors, including their profitability, dividend history, capital ownership structure, investment prospects, shareholder expectations, shareholder tax status, and capital market accessibility.