The impact of corporate governance on dividend payout of manufacturing firms listed at the Nairobi securities exchange

Abstract

This study sought to examine the impact of corporate governance on dividend payout of manufacturing firms listed at the NSE. The objectives of the study were; to determine the impact of board size, board composition, CEO tenure and managerial equity holding on dividend payout of manufacturing firms listed at NSE and finally, to establish the impact of corporate governance on dividend payout of manufacturing firms listed at NSE. This study employed a correlational research design. The population of the study comprised all manufacturing firms which were consistently listed at the Nairobi Securities Exchange from 2008-2014. Data for this study was obtained from the annual published financial statements. Correlation and regression analysis were used to test the impact of the independent variables relating to corporate governance practices on the dependent variable (Dividend Payout). Independent one-way ANOVA test and independent t-test (one tailed) were used to determine the level of significance. The study results indicated that board size, board composition, CEO tenure and management equity holding had a weak negative relationship with dividend payout. Furthermore, board size had a statistical significant impact on dividend payout, while board composition, CEO tenure and managerial equity holding were found to have no statistical significant impact on the dividend payout of manufacturing firms listed at the NSE for the period 2008 to 2014. The empirical results from the multiple regression analysis indicated a correlation coefficient(R) value of 0.692. This means that there is a strong and a positive relationship between corporate governance and dividend payout(r>0.5). However, corporate governance only explained 47.8% of the differences in dividend payout as shown by the coefficient of determination value (R2) of 0.478. Moreover, the significance value on the relationship between corporate governance and dividend payout ratio was 0.263. This implied that corporate governance cannot be used to adequately predict changes in dividend payout (P> 0.05).