An Investigation into Effects of Dividend Policy on Financial Growth of Advertising Firms in Kenya Journal Article

Writer: B. Walter Okibo ؛ G. Chateya Alinyo ؛

International Journal of Management and Business Research Summer 2013, Volume 3 - Number 3 (‎16 page(s) - From 199 to 214 )

Keywords: Agency Cost Factor analysis Abnormal returns Dividend Smoothing Information Asymmetry dividends Dividend signaling Lintner model Pecking order hypothesis Multiple regression analysis Dividend Policy Dividend Firm Corporate Governance Journal An

Abstract:

Effects of dividend policy on corporate financial growth, is a major concern of most entities. Whether dividendshave an influence on the value of the firm, is an important question in dividend policy. This study aimed at investigating the effects of dividend policy on financial growth of media firms. The study was conducted in Nairobi at The Nation media Group Headquarters. Respondents were senior managers, middle level managers and ordinary shareholders. Descriptive research design was used to describe the nature, behavior and factors’ contributing to the study as a case study approach was adopted. Stratified random sampling technique was used to pick a sample size of 215 respondents to carry out the study. The significance of the study was to formulate dividend policies that suit financial environment, bring awareness to workers on how to deal with the shareholders on dividends issues and also to assist in determination of how much debt to be employed in the capital structure. The study revealed that investment policy on dividend payout affects financial growth of the firm through division of earnings between the stockholders and reinvestment into long-term projects. The study concluded that dividend policy is an integral decision in financial management because it maximizes shareholder’s wealth and has relevance on stock prices and firm’s value. The study therefore recommended that the firm should adopt an optimal dividend policy and effective and efficient capital structure which creates a balance between division of earnings and investment in long term projects

Machine summary:

The study revealed that investment policy on dividend payout affects financial growth of the firm through division of earnings between the stockholders and reinvestment into long-term projects. The study concluded that dividend policy is an integral decision in financial management because it maximizes shareholder’s wealth and has relevance on stock prices and firm’s value. Conceptual Framework Figure 1: Conceptual framework (Source: Researchers, 2013) Literature Review Literature was reviewed form different books, journals, magazines, news papers, manuals and websites on corporate dividend policy attracting attention of management scholars and economists ending into theoretical modeling and empirical examination. Literature was reviewed under the following subheadings; corporate financial growth, dividend policy, stock price, investment, and corporate governance. The Knowledge Gap Studies by Miller and Modigliani explained the importance of the effect of a firm’s dividend policy on corporate financial growth not only to management but also to investors and economists for efficient and effective operations of the capital market. This posed a challenge to companies as to whether dividend policy affected corporate financial growth of a firm and therefore the value of a stock. RESEARCH METHOD The focus of this study was on the effects of dividend policy on corporate financial growth of advertising firms. Table 6: How corporate governance practice can improve financial growth Factors No. of Respondents % Board structure 50 33 Board Independence 40 27 Board expertise 35 23 No comments 25 17 Total 150 100 CONCLUSION The study found that dividend policy is an important decision in financial management.

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