| dc.description.abstract | In the light of international securities exchange markets that are highly stochastic,
lowly efficient and strongly speculative, dividend policy decisions are considered as
critical for the firm in recent years. 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, to assess the effect of fluctuating
dividend payout ratio, to examine the effect of a hybrid dividend policy, to
determine the effect of residual dividend payment, and to determine the effect of
stock dividend policy on shareholders’ wealth of commercial banks listed at NSE.
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 study incorporated a descriptive research design
to interpret the effect of dividend policy on shareholders’ wealth of commercial
banks listed on NSE. The target population encompassed 110 respondents composed
of the top management personnel of the 11 commercial banks listed on the NSE. A
quota sampling method of data collection was adopted where the questionnaire was
administered to the selected respondents. The data was coded into the Statistical
Package for Social Sciences (SPSS) for analysis. ANOVA, multiple regression, and
Pearson correlation analysis were utilized as the inferential statistics for additional
analysis. The regression results for a Fixed Rate Dividend Policy, Fluctuating
Dividend Payout Ratio, Hybrid Dividend Policy, Residual Dividend Payment, and
Stock dividend policy had significant and positive effect on Shareholder’s Wealth.
Hypothesis tests for this study were carried out by regressing the independent
variables against shareholders’ wealth as the dependent variable. The null
hypothesis was rejected in favor of the alternative hypothesis at a p-value of 0.009,
0.000, 0.043, 0.011, and 0.000 for a Fixed Rate Dividend Policy, Fluctuating Dividend
Payout Ratio, Hybrid Dividend Policy, Residual Dividend Payment, and Stock
dividend policy respectively which was less than 0.05 at 95% confidence level. In
regard to the findings of this research and the subsequent conclusions, the study
recommends that: listed banks on NSE should formulate strategic policies and
guidelines that advocates for dividend stability and consistency in order to boost the
investors’ confidence in their securities thereby maximizing the shareholders’
wealth, a hybrid dividend policy that is flexible and 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; when retained earnings are more than the funds needed to
finance the appropriate investment initiatives, dividends ought to be distributed;
and when creating a dividend policy, commercial banks should take into account a
number of factors, including their profitability, dividend history, capital ownership
structure, investment prospects, shareholder expectations, shareholder tax status,
and capital market accessibility as the underlying determinants of an optimal
dividend policy realization. | en_US |
