Dividend Policy in Firms Listed at the Nairobi Securities Market: Does Shareholder Activism Matter?

Abstract

Purpose: This study investigated the effect of shareholder activism on dividend policy. Design/Methodology: The study adopted an explanatory research design, specifically the ex-post factor design. The panel data was drawn from 54 listed firms at the Nairobi Securities Exchange (NSE) in eleven different sectors between 2008 and 2017. The study units were annual audited reports.

Findings: The results showed that shareholder activism had a positive and significant effect on dividend policy, b₁=0.0992, p<.05. This effect was significant at the one percent significance level. The inclusion of both growth in sales and firm size as covariates maintained the significant effect of shareholder activism on dividend policy,  b₁=0.0992, p=.05, indicating robust results.

Originality: This study confirms that shareholder activism strongly influences the dividend decisions of firms. It contributes to the emerging trends of corporate governance, which demand the embracement of key stakeholders in major decisions. It provides an opening on control of management indirectly through shareholding.

Practical Implications: It is prudent for company executives to understand the nature of shareholder activism and their perception of dividend policy, match activism and dividend policy, and the company's future. Firms should also design policies to forge a fair distribution of share ownership between large and small shareholders and be wary of concentrating shareholder activism among large shareholders. Dividend policies must also factor in firm size and growth in sales.