Effects of Dividend Policy on Firm’s Financial Performance: Econometric Analysis of Listed Manufacturing Firms in Kenya

Abstract

Dividend policy occupies a major role in the financial management of an organization and serves as a mechanism for control of a managerial opportunism. The objective of the study is to ascertaining the relationship between dividend policy and firm’s profitability, Investment and Earning Per Shares. Data for the study were extracted from annual report and accounts of Nine (9) quoted manufacturing companies in Kenya. These data were subjected to regression analysis, using e-view software and the findings indicate that; there is a significant positive relationship between dividend policies of organizations and firm’s profitability, there is also a significant positive relationship between dividend policy and investments and there is a significant positive relationship between dividend policy and Earnings Per Share. It is recommended that Organizations should ensure that they have a good and robust dividend policy in place because it will enhance their profitability and attract investments to the organizations.

Keywords: Dividend policy, Financial performance, Regression Analysis, Payout Policy