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The Effect of Dividend Policy on the Market Value of Banks Quoted On the Nairobi Securities Exchange

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dc.contributor.author Waweru, Steven W.
dc.date.accessioned 2018-11-08T08:47:16Z
dc.date.available 2018-11-08T08:47:16Z
dc.date.issued 2018
dc.identifier.uri http://erepo.usiu.ac.ke/11732/4095
dc.description A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirements for the Degree of Masters in Business Administration (MBA) en_US
dc.description.abstract This is a research report on the effect of dividend policy on the market value of banks quoted on the Nairobi Securities Exchange. The study was guided by the following research questions; Do the dividends paid by banks listed on the Nairobi Securities Exchange have an effect on their stock prices? Do the earning per share generated by banks listed on the Nairobi Securities Exchange have an effect on their stock prices? Do banks listed on the Nairobi Securities Exchange adopt a residual dividend policy? The study assessed the effect of dividend policy on the market value of the eleven banks quoted on the Nairobi Securities Exchange. The research was guided by the epistemological position of positivism. The research design was quantitative in nature and a descriptive correlational research design was adopted to determine the relationship between the independent variables and the dependent variable. The population of the study was the Banking and Insurance sector of the NSE and the sample was all the eleven banks listed on the NSE. The statistical instruments used included descriptive statistics of mean, standard deviation, mode, median and skewness. Utilized inferential statistical tools of correlation, regression analysis, ANOVA and t-tests. The data was analysed by the use of the SPSS and Excel statistical software. The study was based on secondary data from the audited financial statements of the banks from 2013 to 2017 (5 years) and market price history from the Nairobi Securities Exchange database. To determine whether dividends paid by banks being listed on the Nairobi Securities Exchange had an effect on their stock prices, a regression analysis was done and the results of the regression model indicated that the log of dividend per share and other variables within the model explain 33.7% of the variance of the log of market price per share of the banks. This meant that dividend policy adopted by banks may have a positive impact on its market value. However, the low coefficient indicated a weak relationship between the two. The study sought to determine how earning per share generated by banks listed on the Nairobi Securities Exchange have an effect on their stock prices. The results of the regression model indicated that 47.9% of the variability of the dependent variable and was significant, indicating that that the model does a good job of explaining the variability of the dependent variable. This meant that on average for all the listed banks, earnings earned by banks do have a positive impact on its market value. The study sought to establish whether banks listed on the Nairobi Securities Exchange adopt a residual dividend policy. The Standardized Free Cash Flow (SFCF) was determined for all the listed banks and the mean and standard deviation was calculated. The mean SFCF of all the eleven banks combined was 0.0685 for the five years 2013 to 2017 with a standard deviation of 0.1209. Therefore indicated that banks on average banks do not adopt a residual dividend policy. The study concluded that the dividend policies adopted by banks listed on the NSE did not have a significant influence on the market prices of the eleven banks listed on the NSE for the period 2013 to 2017. Bank managers should adopt the dividend irrelevance philosophy and adopt a residual dividend policy as dividends do not have an impact on the bank’s value. It was also concluded that management should improve operational efficiency and grow revenue to increase the bank’s profitability as this will have a positive impact on the bank’s share price. Lastly, dividends do not have a relationship with market price of banks listed on the NSE. Therefore, banks should adopt a residual dividend policy, noting that dividends are irrelevant, and give priority to the investment and operational policies of the bank. This study recommends that commercials banks should consider their profitability, investment opportunities as well as capital ownership structure when in designing a dividend policy. In addition, the banks also need to make consideration before deciding on whether or not to pay cash dividends for liquidity purposes. The researcher recommends that banks need to focus on improving operational efficiency in order to grow the topline and improve profitability. It is also recommended that once earnings have been generated adopt a residual dividend policy and prioritize the investment programs of the bank to generate growth and future earnings en_US
dc.language.iso en en_US
dc.publisher United States International University - Africa en_US
dc.subject Dividend Policy en_US
dc.subject Market Value of Banks en_US
dc.subject Nairobi Securities Exchange en_US
dc.title The Effect of Dividend Policy on the Market Value of Banks Quoted On the Nairobi Securities Exchange en_US
dc.type Thesis en_US


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