Influence of Dividend Policy on Share Price Movements of Firms Listed on the Nairobi Securities Exchange, Kenya

Abstract

Share price movement (SPM) is a subject whose theoretical and empirical research has increased globally over the years. The main cause for movements in share prices is the perceived value of the firm. The investors' aim of wealth maximization compels the management to work towards this goal. This is then to be conveyed by dividend announcements which express the firm's expected future performance. This often triggers variation in share prices leading the analysts and scholars to consider dividend policy as one of the key determinants of share price movement.  

Thus, the study examined the empirical influence on share price movement (SPM) by dividend policy constituting of Dividend yield (DY) and Dividend Payout (DPO). The total of 47 firms were purposively sampled from NSE listed firms in the Main Investment Market Segment (MIMS) as at the end of the year 2018 at the Nairobi Securities Exchange (NSE)in Kenya. Annual secondary data chiefly in the annual reports collected from CMA, Kenya Bureau of Statistics and NSE is used covering the period 2000-2018.  

The Eviews-10 data analysis tool was utilised on the secondary data using panel data analysis technique of ordinary least squares regression. The results showed that share price movement varied from 20 per cent for manufacturing sector to 86 percent for the energy sector firms listed in MIMS. When dividend policy was controlled for by the variables such as earnings volatility, exchange rate risk and firm size, the model could explain 42.26% of the share price movement at Nairobi Securities Exchange. However, dividend pay-out and size are significant whereas dividend yield, earnings volatility and exchange rate risk are insignificant at 5%. The findings imply that listed firms should manage the wealth maximization objective with dividend payout most appropriate for the firm, since according to the results, the larger the firm the more likely its share price movement. Further research is suggested for dividend policy and SPM based on share prices daily data for the listed firms for comparison with the annual data results.     E