The Interdependence among Dividend Policy, Investment Decision, Financial Performance and Survival of the Firms in Kenya

Edmond  Mubanani Mukhongo; Purity Njeri Fadhil; Charles Guandaru Kamau

doi:10.59413/eafj/v3.i2.7

Authors

Edmond Mubanani Mukhongo Technical University of Mombasa Author https://orcid.org/0009-0009-1579-4927
Purity Njeri Fadhil Technical University of Mombasa Author https://orcid.org/0009-0007-1821-0750
Charles Guandaru Kamau Technical University of Mombasa Author https://orcid.org/0000-0002-8085-0421

DOI:

https://doi.org/10.59413/eafj/v3.i2.7

Keywords:

Dividend Policy, Investment Decision, Financial performance, Dividend pay out

Abstract

The main objective of this study was to analyze patterns and tendencies in dividend policy. By extensively reviewing existing literature, the research aimed to establish the connections between dividend policy and other important financial aspects. The study's findings clearly indicate that investors who are astute prefer companies that provide higher dividends rather than keeping their earnings. This preference is due to the liquidity benefits that such firms typically provide, which align with the liquidity requirements of investors in various financial markets worldwide. It is important to note that the distribution of dividends significantly affects the speed of adjusting the capital structure. The conflict between the distribution of dividends and strategic financing initiatives impedes the progress of these adjustments. A majority of institutional entities allocate dividends strategically to increase their financial resources by investing in high-yielding ventures identified by corporate management. However, in emerging economies, the utility and effectiveness of dividends as a signaling mechanism and cost-minimizing tool are relatively reduced compared to more mature and well-established capital markets. Additionally, it is worth highlighting that dividend policy has a statistically significant and positive correlation with variables such as firm size, profitability levels, and interest coverage ratios. This emphasizes the complex relationships that exist between dividend policy and these key financial metrics.

References

Aivazian, V., Booth, L., & Cleary, S. (2003). Dividend policy and the organization of capital markets. Journal of multinational financial management, 13(2), 101-121. DOI: https://doi.org/10.1016/S1042-444X(02)00038-5

Ali, H. (2022). Corporate dividend policy in the time of COVID-19: Evidence from the G-12 countries. Finance Research Letters, 46, 102493. DOI: https://doi.org/10.1016/j.frl.2021.102493

Azhariyah, A., Witjaksono, A. D., & Hartono, U. (2021). The effect of profitability, leverage, liquidity, size, and company growth on the dividend payout ratio in the Indonesian Capital Market 2013-2018. Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences, 4(1), 1351-1360. DOI: https://doi.org/10.33258/birci.v4i1.1761

Bhatt, S., & Jain, S. (2022). Economic Policy Uncertainty and Dividend Policy: Evidence from Commercial Banks in Nepal. ECS Transactions, 107(1), 7801. DOI: https://doi.org/10.1149/10701.7801ecst

Bradley, M., Capozza, D. R., & Seguin., P. J. (1998). "Dividend policy and cash‐flow uncertainty. Real Estate Economics, 26(4), 555-580. DOI: https://doi.org/10.1111/1540-6229.00757

Dang, H. N., Vu, V. T., Ngo, X. T., & Hoang, H. T. (2021). Impact of dividend policy on corporate value: Experiment in Vietnam.". International Journal of Finance & Economics, 26(4), 5815-5825. DOI: https://doi.org/10.1002/ijfe.2095

Ndlovu, D., & Haabazoka, L. (2024). Evaluating the Impact of Foreign Direct Investment on Economic Growth in Zambia;1996-2020. East African Finance Journal, 3(1), 107-130. DOI: https://doi.org/10.59413/eafj/v3.i1.5

Guney, Y., Karpuz, A., & Komba, G. (2020). The effects of board structure on corporate performance: Evidence from East African frontier markets. Research in International Business and Finance, 53, 101222. DOI: https://doi.org/10.1016/j.ribaf.2020.101222

Hoang, L. X., Dang, D. Q., & Tran, T. D. (2020). The Role of Overconfident CEO to Dividend Policy in Industrial Enterprises. The Journal of Asian Finance, Economics and Business, 7(7), 361-367. DOI: https://doi.org/10.13106/jafeb.2020.vol7.no7.361

Islam, K., Asghar, N., & Bilal, A. R. (2019). An Analysis of Dividend Policy and Stock Price Variations in Pakistan. Pakistan Journal of Social Sciences, 39(1), 327–340. Retrieved from https://media.teckiz.com/pakistan-journal-of-social-sciences/pjss-bzu/2020/05/29/5ed0dae464af5.pdf

Kamaruddin, S. A., Subramaniam, V., Ghani, N. A., & Rahim, H. A. (2022). Analyzing family ownership structure and dividend policy using artificial neural network. In AIP Conference Proceedings. 2472, p. 050013. AIP Publishing LLC. DOI: https://doi.org/10.1063/5.0094879

Kamau, C. G., & Ilamoya, S. L. (2023). Accounting profession: African perspective review of steps into the future. Multidisciplinary Journal of Technical University of Mombasa, 2(1), 19-26. DOI: https://doi.org/10.48039/mjtum.v2i1.43

Kanakriyah, R. (2020). Dividend policy and companies' financial performance. The Journal of Asian Finance, Economics and Business, 7(10), 531-541. DOI: https://doi.org/10.13106/jafeb.2020.vol7.no10.531

Nguyen, D. D., To, T. H., Nguyen, D. V., & Do, H. P. (2021). Managerial overconfidence and dividend policy in Vietnamese enterprises. Cogent Economics & Finance, 9(1), 1885195. DOI: https://doi.org/10.1080/23322039.2021.1885195

Nurwulandari, A. (2020). The Impact of Investment Opportunity Asset, Return on Assets, and Sales Growth on Dividend Policy: Empirical Analysis of Manufacturing Companies Listed in the Indonesian Sharia Stock Index (ISSI) from 2015-2017. International Journal of Islamic Khazanah, 10(1), 34-42.

Pinto, G., Rastogi, S., Kadam, S., & Sharma, A. (2019). Bibliometric study on dividend policy. Qualitative research in financial markets, 12(1), 72-95. DOI: https://doi.org/10.1108/QRFM-11-2018-0118

Poretti, C., & Blal, I. (2020). The asset-light strategies and the dividend puzzle: International evidence from the hospitality industry. International journal of hospitality management, 91. DOI: https://doi.org/10.1016/j.ijhm.2020.102639

Reppen, A. M., Rochet, J.-C., & Soner, H. M. (2019). Optimal dividend policies with random profitability. Mathematical Finance, 1, 228-259. DOI: https://doi.org/10.1111/mafi.12223

Sogomi, F. C., Patrick, M. K., & Kamau, C. G. (2024). Exploring the Relationship between Working Capital Management, Liquidity, and Financial Performance within the Context of Kenyan SME’s. African Journal of Commercial Studies, 4(2), 113-120. DOI: https://doi.org/10.59413/ajocs/v4.i2.4

Subramaniam, V., & Wasiuzzaman, S. (2019). Corporate diversification and dividend policy: empirical evidence from Malaysia. Journal of Management and Governance, 23(3), 735–758. DOI: https://doi.org/10.1007/s10997-018-9440-x

Trinha, V. Q., Karab, A., & Elnahass, M. (2022). Dividend payout strategies and bank survival likelihood: A cross-country analysis. International Review of Financial Analysis, 81. DOI: https://doi.org/10.1016/j.irfa.2022.102129

Wahjudi, E. (2020). Factors affecting dividend policy in manufacturing companies in Indonesia Stock Exchange. Journal of Management Development, 1, 4-17. DOI: https://doi.org/10.1108/JMD-07-2018-0211