Influence of Financial Performance and Financial Leverage on Dividend Payout
International Journal of Accounting, Finance and Risk Management
Volume 5, Issue 3, September 2020, Pages: 167-173
Received: Aug. 19, 2020; Accepted: Sep. 4, 2020; Published: Sep. 16, 2020
Views 59      Downloads 66
Solomon Munyoki Kathuo, Department of Economics and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Oluoch Oluoch, Department of Economics and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Agnes Njeru, Department of Economics and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Article Tools
Follow on us
This study explored the influence of financial performance and financial leverage on Deposit-Taking Saccos in Kenya. The study was motivated by inconsistency in the ability of Saccos to live up to their promise of paying dividends to members consistently. Many of them pay dividends from unforeseen profits and/or while highly leveraged. These unhealthy dividend practices leave Saccos unable to pay dividends in the long term sustainably, besides exposing them to insolvency. Existing studies on the factors of dividend payout in Kenya were mainly used unidimensional variables and/or were limited in sectoral scope. The present study targeted all registered DTSSaccos in Kenya (n=179) over an eight-year period (2012-2019). Panel data modelling was used, which was a departure in methodology from previous studies. The effects of financial performance, financial leverage. Descriptive results showed that financial performance measured by ROE for for DT-saccos was below industry standards at 3%. During the panel period, Saccos failed to improve their ability to generate resources from equity yet, they sustained a high dividend payout. To maintain their dividend payout, the DT-saccos borrowed funds to pay dividends Financial leverage measured by Debt ratio had an inverse, significant effect on dividend payout. Between 2012-2019, the debt ratio of DT saccos averaged 195%, and this ratio was much higher than the comparable ratio for the banking industry, which was just 20% between 2012-2019. The findings deepen our understanding of the interplay of factors influencing dividend payout in DT-Saccos in Kenya. Small saccos have higher dividend payout compared to large ones. Indeed, small saccos use dividends as a business strategy to retain and attract new members, thereby augment their capital.
Saccos, Dividends, Performance, Leverage, Debt Ratio
To cite this article
Solomon Munyoki Kathuo, Oluoch Oluoch, Agnes Njeru, Influence of Financial Performance and Financial Leverage on Dividend Payout, International Journal of Accounting, Finance and Risk Management. Vol. 5, No. 3, 2020, pp. 167-173. doi: 10.11648/j.ijafrm.20200503.16
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Ahmeti F, & PrenajB. (2015). A critical review of Modigliani and Miller's theory of capital structure. International Journal of Economics, Commerce and Management, 3 (6), 914- 924.
Ademba C. (5th October 2010). Challenges Facing SACCO Regulations In Africa. African Confederation of Coopertative Saving & Credit Associations Website (Paper presented at the 11th SACCO Congress). Swaziland:
Al-Ajmi J, & HussainH. (2011). Corporate dividends decisions: Evidence from Saudi Arabia. The Internatinal Journal of Economics and Finance Vol. 6, No. 4; 2014, Risk Finance, 12 (1), 41-56.
Al-Malkawi N Hudam-Aldin,, Rafferty M, & Pillai R. (2010). Dividend Policy: A Review of Theories and Empirical Evidence. International Bulletin of Business Administration, 9, 171-200.
Archbold, StuartVieira, & ElisabeteF. Simoes. (2010). Corporate dividend policies in bank-based and market- based systems: survey evidence from UK and Portugal.
Amidu M. (2007). How does dividend policy affect perfomance of the firm on Ghana Stock Exchange. Investment Management and Financial Innovations, 4 (2), 104-112.
Banerjeer S. (2016). Ownership, investment and governance: The costs and benefits of dual class shares.
Blaikie N. (2010). Designing Social Research. Cambridge: Polity Press.
DeAngelo H, DeAngelo L, & Stultz RM. (2006). Dividend Policy and the Earned /Contributed Capital Mix: A Test of the Life-Cycle Theory. Journal of Financial Economics, 81 (2), 227-254.
Dhanani A. (2005). Corporate Dividend Policy: the views of British financal managers. Journal of Business Finance and Accounting 37 (7) and 8, 1625-1672.
Enow S. T, & IssacaEBH. (2018). Factors that determine dividend payout: Evidence from the financial sectors in South Africa. Journal of Banking and Finance Management, 1 (1), 48-53.
Eriotis. (2015). Determinants of corporate dividends policy: Evidence from an emerging economy.
Greener. (2010). Improving health and well-being independently of GDP: Dividends of greener and prosocial economies.
Kania S. L, & BaconF. W. (2005). What Factors Motivate the Corporate Dividend Decision? American Society of Business and Behavioural Sciences E-Journal, 1 (1), 95-107.
Kazucu N. (2015). Determinants of Dividend Policy: A Panel Data Analysis for TurkishListed.
Kimutai P. K. (2012). The effect of liquidity on dividend payout by companies listed at the Nairobi Securities Exchange. Unpublished MBA Thesis, University of Nairobi.
KothariC. (2013). Research Methodology: Methods and Techniques. New Delhi: New Age International Publishers.
Malkawi H. A, Twairesh A, & Harery K. (2013). Determinants of the Likelihood to Pay Dividends: Evidence from Saudi Arabia. Journal of American Science, 9 (12), 518-528.
Maladjian C, & REl Khoury. (2014). Determinants of the dividend policy: An empirical study on the Lebanese Listed Banks. International Journal of Economics and Finance, 6 (4), 240-256.
Miller MH, & ModiglianiF. (1961). Dividend Policy, Growth, and Valuation of Shares. Journal of Business, 34, 411-433.
Mohammadi. (2015). Effect of Financial Perfomance on Earnings Management in the Drug Distribution Industry.
MohammadiL. H, & AmiriH. (2016). Investigation the Effect of Ownership Structure, Financial Leverage, Profitability and Investment Opportunity on Dividend Policy. International Journal of Humanities and Cultural Studies, 3 (April 2016), 2279-2288.
Mutunga NT, Kamau GJ, & Ragamap. (2018). Free Cash Flow, Agency Problems and Dividends in Emerging Markets: The Case of Nairobi Securities Exchange, Kenya, 4 (2), 64-78.
Mwangi P, Mutiso A, & Kabata D. (2018). Influence of Cshflow Liquidity on Dividend Payout Among Deposit Taking and Credit Cooperatives Societies (SACCos) in Kenya. International Journal of Finance and Accounting, 9 (20), 81-86.
Myers. (2012). Determinants of corporate dividend policy in Greece.
Ndung'u, & George M. (2010). Factors influencing Digital Divide In The Rural- And Semi- Urban Regions of Kenya: Case study of Juja Town and the Surrounding Areas.
Ngobe DK, Simiyu AK, & Limo PK. (2013). Dividend Policy and Share Price Volatility in Kenya. Research Journal of Finance and Accounting, 4 (6), 115-120.
Nusu E, Musah A, & Senyo D. (2014). Determinants of Dividend Payout of Financial Firms and Non- Financial Firms in Ghana. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4 (3), 109-118.
Odawo C, & J. Ntoiti. (June, 2015). Determinants Of Dividend Payout Policy In Public Ltd Banks In Kenya: A Case Study Of Cfc Stanbic Bank. The Strategic Journal of Business Change and Management, 2 (54), 182-191.
Ranti. (2013). Determinants of Dividend Policy: A study of selected listed Firms in Nigeria.
Rehman, & Takumi. (2012). Determinants of Dividend payout ratio: Evidence from Karachi Stock Exchange (KSE).
Sacco Societies Regulatory Authority. (2017). The Sacco Supervision Annual Report 2016. Nairobi: The Sacco Societies Regulatory Authority.
Samuel, & Memba. (2016). Effects Of Corporate Governance On Dividend Payment Among Savings And Credit Co-Operative Societies In Kenya. Strategic Journal of Business & Change Management.
Sindhu. (2016). Impact of ownership structure on dividend payout in Pakistani non-financial sector.
Theuri. (2013). The Effects of Stock Splits Announcements On Stock Prices of Publicly Quoted Firms In Kenya.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186