Effect of Dividend Policy on Share Price Performance: A Case of Listed Insurance Companies at the Nairobi Securities Exchange, Kenya
The purpose of this study was to determine the effect of dividends policy on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE). This study was guided by the following objectives: to determine the effect of dividend payout on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE), to examine the effect of dividend yield on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE), to analyze the effect of earnings per share on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE) and to determine the effect of inflation on share price performance of insurance companies listed at the Nairobi Securities Exchange (NSE). This study was underpinned by two theories namely; Modigliani and Miller, and Gordon's Model. This study adopted a combination of descriptive design and historical research design. The target population was six insurance companies listed at the Nairobi Securities Exchange namely; Jubilee holdings ltd, Pan Africa Insurance holdings, Kenya Re-Insurance Corporation limited, Liberty Kenya Holdings, British American Investment company ltd and CIC Insurance groups. Secondary data was collected from the companies’ past financial reports for ten year period between 2006-2015. Panel data was evaluated and analyzed using stata. Dynamic regression analysis was used to establish the relationship between dividend policy on share price of the listed insurance companies. This study established that dividend payout, dividend yield, earnings per share and inflation are jointly significant in predicting the value of share price. Therefore the study recommended that insurance firms should consider their dividend policy accurately since they have a great power on influencing share price, because they affect share price by making stocks prices move either up or down depending on dividends announced by management hence management should be prudently responsive in declaring dividends. Further, the study recommended that management of insurance firms should strive to declare higher dividends to spur share price upwards. The findings of this study benefits insurance firms and regulators like CMA, IRA and NSE in decision making. Further studies to be conducted regarding dividend policy on share price with expanded time frame on all listed companies at NSE.
Joseph Kurwo Chelimo,
Symon Kibet Kiprop,
Effect of Dividend Policy on Share Price Performance: A Case of Listed Insurance Companies at the Nairobi Securities Exchange, Kenya, International Journal of Accounting, Finance and Risk Management.
Vol. 2, No. 3,
2017, pp. 98-106.
Akhigbe, A., Borde, S. F., & Madura, J. (1992). Dividend Policy and Announcemnts on Market Share Performance of American Firms. The Journal of Risk and Insurance,60 (3), 41-428.
Allen, F and Michaely, R. (2002). Payout Policy. Handbook of the Economics of Finance.
AL-Shubiri, N. (2011). Determinants of Changes Dividend Behavior Policy:Evidence from the Amman StockExchange. Far East Journal of Psychology and Business, 2 (4), 1-15.
Amidu, M., & Abor, J. (2006). Determinants of Dividend Payout ratios in Ghana. The Journal of Risk Finance, 7, 136-145.
Brooks, C. (2008). Introductory Econometrics for Finance(2 ed.). Cambridge University Press.
Chandran, E. (2004). Research Methods: A quantitative Approach. Nairobi: Daystar University.
Charumathi, B. (2012). On the Determinants of Profitability of Indian Life Insurers – An Empirical Study. Proceedings of the World Congress on Engineering, 1, 978-88.
Damodaran, A. (2001). Corporate Finance theory andPractice. United States: John Wiley &sons Incl.
Eriotis, N. (2005). The Effect of Distributed Earnings and Size of the Firm to its Dividend Policy: Some Greek Data International Business and Economics Journal, 4(1), 67-74.
Gitau. (2011). The Relationship between Dividend Payment and Share Price for Companies Listed at the NSE. Unpublished MBA Thesis, University of Nairobi.
Gitonga, K. W. (2014). Effects of Macroeconomic Variables on Credit Risk in the Kenyan Banking system. International Journal of Business and Commerce 3, (9).112-117.
Gordon, M. J. (1963). The Investment, Financing, and Valuation of the Corporation. Homewood, IL: Richard D. Irwin.
Hussainey, K., Mgbame, C. & Aruoriwo, M. (2010), Dividend Policy and Share Price Volatility: UK Evidence. Journal of Risk Finance, 12 (1), 57 – 68.
Ioannides, D., Katrakilidis, C., & Lake, A. (2005). The relationship between Stock Market Performance and Inflation: An econometric investigation.
IRA. (2015). Insurace Requlatory authority ManualAnnual reportsRetrievedfromWebsite:http://www.ira.go.ke/downloads.
Kennedy, P. (2008). A guide to econometrics (sixth ed.). Blackwell Publication.
Khan, K. I. (2012). Effect of Dividends on Stock Prices .A Case of Chemical and Pharmaceutical Industry of Pakistan. Journal of Scientific & Academic Publishing, 2(5), 141-148.
Khan, S. H. (2005). Determinants of share price movements in Bangladesh: Dividends and retained earnings, School of Management, Blekinge Institute of Technology.
Kombo, D. K., & Tromp, D. L. A. (2006). Proposal and Thesis Writing. An Introduction. Paulines Publications Africa, Nairobi.
Kopcke, R. W. (1992). The Capitalization and PortfolioRisk of Insurance Companies, New England Economic Review, July-August, 44-57.
Kothari, C. R. Quantitative Techniques, 2nd ed., New Delhi: Vikas Publishing House Pvt. Ltd., 2004.
Lintner, J. (1956). Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes. American Economic Review 46(2), 97–113.
Majanga, B. (2015). The Dividend Effect on Stock Price an Emperical Analysis of Malawi Listed Companies. Journal of Accounting and Finance, 4(3),99-109.
Mandal, N., & Rao, N. K. (2010). Semi - Strong Form of Indian Stock Market Efficiency: An Empirical Study. Journal of Management, 11, 1-16.
Matoke, Jeremiah. & Marangu,Wilfred (2014). Impact of Dividend Payments on Share Values in Companies Listed inthe Nairobi Securities Exchange. European Journal of Business and Management, 6(17), 2222-2839.
Mohammed, H., & Chowdhury, G. M. (2010). Effects of Dividend Announcement on Shareholders’ Value. Evidence from Dhaka Stock Exchange. Journal of Business Research, 7, 61-72.
Mokaya, S. O., Nyang’ara, D. M., & James., L. T. (2013).The Effect of Dividend Policy on Market Share Value in the Banking Industry; the Case of National Bank of Kenya. International Journal of Arts and Commerce,2(2),330-375.
Miller, M., &. Modigliani, F. (1961). The cost of capital, corporation finance, and the theory of investment. American economic Review, 48(6), 261-197.
Miller, M. H,. & Rock, K. (1985). Dividend Policy under Asymmetric Information, Journal of Finance, 40, 1031-1051.
Mugambi, M. & Okech, T. C. (2016). Effect of Macroeconomic Variables on Stock Returns of Listed Commercial Banks in Kenya. International Journal of Economics, Commerce and Management,4 (6), 390-418.
Munyua, P. N. (2014).The Effect of Dividend Policy on Stock Prices for Firms listed at the Nairobi Securities Exchange. Unpublished MBA Thesis University of Nairobi Kenya.
Murekefu, M. T., & Ouma, P. O. (2012). The relationship between dividend payout and firm performance. European Scientific Journal, 8(9), 199-215.
Ndungu, S. K., Simuyu, J. N., Galo, J., & Mbogo. (2014). The Effect of Dividend Announcementson share price Changes for companies listed atNairobisecurities Exchange. Research Journal of financeand Accounting, 5 (17), 243-270.
N. S. E, (2016). Retrieved April 25th Friday, 2016, from http://www.softkenya.com.
Ogolo D. A. (2012). The effect of dividend policy on share prices of multinational and local companies listed at the Nairobi securities exchange. Unpublished MBA project, University of Nairobi, Kenya.
Ordu, M. M., Chinedu, Enekwe., & Mike. (2014). The Effect of Dividend Payment on the Market Price of Shares: A Study of Quoted Firms in Nigeria. Journal of Economics and Finance, 5(4), 49-62.
Pandey, I. M. (2010). Financial Management. Vikaspublishing House.
Pettit, R. R. (1977). Taxes, transactions costs and the clientele effect of dividends. Journal of Financial Economics, 5 (3), 419–436.
Sarig, O. D. (2000). Dividend Policy Its Impact on Firm Value. Harvard Business School Press, Boston, MA.
Sharma, S. (2011). Determinants of equity share prices in India. Journal of arts, science, & commerce, 2(4), 94-102.
Shisia, A., Sang, W., Sirma, Kiplimo. & Maundu, Nzioka. (2014). The assessment of dividend policy on financial performance of telecommunication companies quoted at the Nairobi securities exchange. International Journal of Economics, Commerce and Management United Kingdom, 2(10).
Sharma, R. V. (2011). Stock Price Behavior around Dividend Announcements. An Event Study Methodology. The XIMB Journal of Management, 8(2), 23-32.
Stock, J., & Watson, M. (2011). Introduction to Econometrics (3rd ed.). Addison Wesley: Longman.
Waithaka, S. M., John, K. N., Jonah K. A., Julius, K. I., & Patrick, K. (2012). Effects of Dividend Policy on Share Prices: A case of Companies in Nairobi Securities Exchange. Prime Journal of Business Administration and Management (BAM), 2(8), 642-648.
Wekesa, C. W. (2013). Determinants of dividend payout of Kenya agricultural sector. unpublished thesis university of Kenyatta University. Kenya.
Yegon, C. C., Sang, J., Cheruiyot, P. K., Kirui, J., & Rotich, J. (2014). Effects of dividend policy on Firms’s Financial Performance: Econometric Analysis of listed Manufacturing firms in Kenya. Research Journal of Finance & Accounting, 5(12).