The Interdependence among Dividend Policy, Investment Decision, Financial Performance and Survival of the Firms in Kenya

Edmond Mubanani Mukhongo, Purity Njeri Fadhil and Charles Guandaru Kamau
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Edmond Mubanani Mukhongo: Technical University of Mombasa
Purity Njeri Fadhil: Technical University of Mombasa
Charles Guandaru Kamau: Technical University of Mombasa

East African Finance Journal, 2024, vol. 3, issue 2

Abstract: The main objective of this study was to analyze patterns and tendencies in dividend policy. By extensively reviewing existing literature, the research aimed to establish the connections between dividend policy and other important financial aspects. The study's findings clearly indicate that investors who are astute prefer companies that provide higher dividends rather than keeping their earnings. This preference is due to the liquidity benefits that such firms typically provide, which align with the liquidity requirements of investors in various financial markets worldwide. It is important to note that the distribution of dividends significantly affects the speed of adjusting the capital structure. The conflict between the distribution of dividends and strategic financing initiatives impedes the progress of these adjustments. A majority of institutional entities allocate dividends strategically to increase their financial resources by investing in high-yielding ventures identified by corporate management. However, in emerging economies, the utility and effectiveness of dividends as a signaling mechanism and cost-minimizing tool are relatively reduced compared to more mature and well-established capital markets. Additionally, it is worth highlighting that dividend policy has a statistically significant and positive correlation with variables such as firm size, profitability levels, and interest coverage ratios. This emphasizes the complex relationships that exist between dividend policy and these key financial metrics.

Keywords: Dividend Policy; Investment Decision; Financial performance; Dividend pay out (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:cwk:eafjke:2024-13

DOI: 10.59413/eafj/v3.i2.7

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