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DIVIDEND POLICY AND FIRM VALUE IN KENYA.RELEVANT OR IRRELEVANT?
WAMBUGU JOHN KAMAU
D53/NYI/PT/28024/2014
A SEMINAR PAPER SUBMITTED TO THE SCHOOL OF
BUSINESS IN PARTIAL FULFILMENT FOR THE AWARD OF
DEGREE IN MASTER OF BUSINESS ADMINISTRATION OF
KENYATTA UNIVERSITY
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JULY 04, 2015
LECTURER: EUNICE MACHARIA
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TABLE OF CONTENTS
TABLE OF CONTENTS............................................I
LIST OF APPENDICES..........................................II
ABSTRACT...................................................III
1. INTRODUCTION..............................................1
1.1. Background of the study..............................................1
1.2. Significance of the study............................................2
2. LITERATURE REVIEW.........................................3
2.1. Introduction.........................................................3
2.2. Dividend Policy......................................................3
2.3. Dividend Policy Theories.............................................42.3.1. Dividend Irrelevance Theory......................................42.3.2. Residual Dividend Theory.........................................62.3.3. The Gordon / Lintner - Bird-In-The-Hand Theory...................62.3.4. Walter’s Model...................................................62.3.5. Agency Costs Theory of Dividend Policy...........................62.3.6. Tax-Preference Theory............................................72.3.7. Clientele Effects of Dividends Theory............................72.3.8. Catering Theory..................................................72.3.9. Signaling Theory.................................................8
2.4. Empirical Evidence in Kenya..........................................92.4.1. Relevance of dividend policy based on Signaling Theory...........92.4.2. Relevance of dividend policy based on Clientele effect theory....92.4.3 Other evidence of dividend policy relevance.....................10
3. OBSERVATION, DISCUSSION, CONCLUSION & RECOMMENDATIONS....12
3.1. Finance Managers’ view on dividend policy...........................12
3.2. Discussion..........................................................12
3.3. Conclusion and Recommendation.......................................12
3. REFERENCES:..............................................14
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LIST OF APPENDICES
APPENDIX 1: ILLUSTRATION OF TWO SCHOOLS OF THOUGHT ON DIVIDEND POLICY...............16APPENDIX 2: FORMULA OF M-M’S APPROACH........................................16APPENDIX 3: FORMULA OF WALTER’S MODEL.........................................17APPENDIX 4: FORMULA OF GORDON’S MODEL.........................................17
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ABSTRACT
The main purpose of this seminar paper is to verify therelationship between dividend payout and the firm’s value invarious Kenyan firms and value of the study being theidentification of how dividend policy affects performance offirms and thus firm value in Kenya. The study captures recentpublications on data derived and analysed from various listedfirms. Much of the research conducted shows relevance ofdividend policy to firm’s value.
Key Terms contents: Dividends, Dividend Policy, Dividend Policy Theories,relevance, irrelevance, Nairobi Securities Exchange.
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1. INTRODUCTION
1.1. Background of the studyIn corporate finance, firms undertake major financial decisions
when it comes to value creation; selection of long-term
investment proposals, known as the long-term investment
decision, determination of working capital requirements, known
as the working capital decision, raising of funds to finance
the assets, known as the financing decision, and allocation of
profits for dividend payment, known as the dividend decision.
Pandey (2005) defines dividend as that portion of a company’s
net earnings which the directors recommend to be distributed to
shareholders in proportion to their shareholdings in the
company. The dilemma is whether the management of a firm should
distribute cash to shareholders or reserves the cash to finance
new investments. Dividends represent a direct payment to
shareholders. Earnings that are retained by the firms increase
the value of the firm in that they can either be invested in
projects within the firm that will enhance future earnings or
be invested elsewhere at the market interest rate and be paid
out as dividend in the future (Baye and Jansen, 2006).
Many researchers have devised theories and provided empirical
evidence regarding the determinants of a firm’s dividend
policy. The dividend policy issue, however, remains still
unresolved due to the fact that there are so many variables
depending upon the type of company, its financial conditions,
and its industry among other variables. There is no single
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formula that could be applicable. Clear guidelines for an
‘optimal payout policy’ have not yet emerged despite the
voluminous literature. The explanation for the observed
dividend behavior of companies remains a “puzzle”
There are conflicting views regarding the impact of dividend
decision on the valuation of the firm. According to one school
of thought, whether firms pay dividends or not is irrelevant in
determining the stock price and hence the market value of the
firm and ultimately its weighted cost of capital. On the other
hand, according to the other school of thought, dividend
decision materially affects the shareholders' wealth and also
the valuation of the firm. It holds that firms which pay
periodic dividends eventually tend to have higher stock prices,
market values and cheaper WACCs. The existence of these two
opposing sides has spawned vast amounts of empirical and
theoretical research.
1.2. Significance of the studyDividend policy to date is one of the most contested topics in
finance. Several decades since interest in the area was sparked
off by Modigliani and Miller (1961), no general consensus has
emerged and scholars can often disagree even on the same
empirical evidence.
Are dividends relevant? Investors prefer higher dividends to
lower dividends at any single date if the dividend level is
held constant at every other date. If the dividend per share at
a given date is raised while the dividend per share for each
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other date is held constant, the stock price will rise. This
act can be accomplished by management decisions that improve
productivity, increase tax savings, or strengthen product
marketing.
Is dividend policy irrelevant? Dividend policy cannot raise the
dividend per share at one date while holding the dividend level
per share constant at all other dates. Dividend policy merely
establishes the trade-off between dividends at one date and
dividends at another date. In simple world, dividend policy
does not matter. Managers choosing either to raise or to lower
the current dividend do not affect the current value of their
firm. This is in line with the work of MM, which is a powerful
theory. However in real-world consideration there are many
factors that were ignored by MM and needs to be examined.
Several theoretical and empirical studies have been done
leading to mainly three outcomes; the increase in dividend
payout affects the market value of the firm: the decrease
dividend payout adversely affects the market value of the firm:
the dividend policy of the firm does not affect the firm value
at all. The relevance of dividend policy on stock price is a
matter of considerable importance to the management who sets
the policy, to the investors who invest in shares, and to the
financial economists who endeavor to understand and appraise
the functions of the capital markets. Therefore, it is
important to have an understanding of whether dividend policy
is important or not in Kenya. This seminar paper will study
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several recent research covering the topic on relevance and
irrelevance of dividend policy, as key and contentious area of
corporate finance, and also discuss the literature that has
been produced concerning the topic, by reviewing the most
important and influential studies in this area and main
empirical studies.
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2. LITERATURE REVIEW
2.1. IntroductionThis chapter is split into three sections. The first section
highlights dividends policy. The second section discusses the
key theoretical considerations from previous studies related
dividend policy and the firms’ performance, extended of their
relationship, factors that affect dividend policy and forms of
dividend policy used by listed firms. The third section
highlights empirical evidence derived from previous studies;
their findings, conclusion and recommendations
2.2. Dividend Policy The term dividend refers to that part of profits of a company
which is distributed by the company among its shareholders. It
is the reward of the shareholders for investments made by them
in the shares of the company.
Dividend policy is an integral part of the firm’s financing
decision. Dividend policy can affect the value of a firm and in
turn, the wealth of shareholders (Baker et al, 2001).The
dividend-payout ratio determines the amount of earnings that
can be retained in the firm as a source of financing. Dividend
policy of a firm, thus affects both the long-term financing and
the wealth of shareholders. Dividend policy is therefore,
considered to be one of the most important financial decisions
that corporate managers encounter (Baker and Powell, 1999). It
has potential implications for share prices and hence returns
to investors, the financing of internal growth and equity base
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through retentions together with its gearing and leverage
(Omran and Pointon, 2004). Dividend policy theories are
propositions put in place to explain the rationale and major
arguments relating to payment of dividends by firms. Firms are
often torn in between paying dividends or reinvesting their
profits on the business. Even those firms which pay dividends
do not appear to have a stationary formula of determining the
dividend payout ratio.
The dividend policy was bound up with the development of the
corporate form itself. Lease et al (2000:1) describes dividend
policy as the payout that management follows in determining the
size and pattern of cash distributions to shareholders over
time. It was seen that the emergence of dividend policy as
important to investors was, to some. It was also seen that in
the absence of regular and accurate corporate reporting,
dividends were often preferred to reinvested earnings, and
often even regarded as a better indication of corporate
performance than published earnings accounts. However, as
financial markets developed and became more efficient, it was
thought by some that dividend policy would become increasingly
irrelevant to investors. Why dividend policy should remain so
evidently important has been theoretically controversial.
2.3. Dividend Policy TheoriesAccording to Al-Malkawi et al, (2010), three main contradictory
theories of dividends can be identified. Some argue that
increasing dividend payments increases a firm’s value. Another
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view claims that high dividend payouts have the opposite effect
on a firm’s value; reduces firm value. The third theoretical
approach asserts that dividends should be irrelevant and all
effort spent on the dividend decision is wasted. These views
are embodied in three theories of dividend policy: high
dividends increase share value theory; bird-in-the- hand, low
dividends increase share value theory; the tax-preference
argument, and the dividend irrelevance hypothesis. Several
other theories of dividend policy have been presented implying
that dividend debate is not limited to the above three
approaches. This further increases the complexity of the
dividend puzzle. Basically, the principal hypotheses of
dividend policy can be classified into signaling models,
clientele effects, agency models, tax effects and free cash
flow hypothesis Frankfurter et al, (2004); Brav et al, (2005).
2.3.1. Dividend Irrelevance TheoryPrior to the publication of Miller and Modigliani’s (1961,
hereafter M&M) seminal paper on dividend policy, a common
belief was that higher dividends increase a firm’s value.
Miller and Modigliani (M&M) provide the most comprehensive
argument for the irrelevance of dividends. They assert that,
given the investment decision of the firm, the dividend payout
ratio is a mere detail and that it does not affect the wealth
of shareholders. (Miller & Modigliani, 1961) proposed
irrelevance theory suggesting that the wealth of the
shareholders is not affected by dividend policy. It is argued
in their theory that the value of the firm is subjected to the
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firm’s earning, which comes from company’s investment policy.
The literature proposed that dividend does not affect the
shareholders’ value in the world without taxes and market
imperfections. They argued that dividend and capital gain is
two main ways that can contribute profits of firm to
shareholders. When a firm chooses to distribute its profits as
dividends to its shareholders, then the stock price will be
reduced automatically by the amount of a dividend per share on
the ex-dividend date. So, they proposed that in a perfect
market, dividend policy does not affect the shareholder’s
return.
There are some voices of researchers supporting the irrelevance
dividend hypothesis which will be reviewed as follows:
(Brennan, 1971) supported the irrelevancy theory of Miller and
Modigliani and concluded that any rejection of this theory must
be based on the denying of the principle of symmetric market
rationality and the assumption of independence of irrelevant
information. He suggested that for rejection of latter
assumption, one of these following conditions must exist:
firstly, Investors do not behave rationally. Secondly, Stock
price must be subordinate of past events and expected future
prospect.
(Black & Scholes, 1974) created 25 portfolios of common stock
in New York Stock Exchange for studying the impact of dividend
policy on share price from 1936 to 1966. They used capital
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asset pricing model for testing the association between
dividend yield and expected return. Their findings showed no
significant association between dividend yield and expected
return. They reported that there is no evidence that difference
dividend policies will lead to different stock prices. Their
findings were consistent with dividend irrelevance hypothesis.
(Hakansson, 1982) supported the irrelevance theory of Miller
and Modigliani and claimed that dividends, whether informative
or not, is irrelevant to firm’s value when investors have
homogeneous belief and time additive utility and market is
fully efficient.
(Uddin & Chowdhury, 2005) selected 137 companies which were
listed on Dhaka Stock Exchange (DSE) and studied the
relationship between share price and dividend payout. The
results implied that dividend announcement does not provide
value gain for investors and shareholders experience
approximately 20 % loss of value during thirty days before the
announcement of dividend to thirty days following the
announcement. He suggested that current dividend yield can
reimburse the diminished value to some extents. Generally, his
findings supported the irrelevancy of dividend policy.
However, some empirical results of different researches were
consistent with irrelevance dividend theory. There are many
researches challenging the dividend irrelevance hypothesis.
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(Ball et al 1979) studied the relationship between dividends
and stock price in Australian stock market from 1960 to 1969.
They found significant relationship between return of stock and
dividend yield in the next year after dividend payment.
However, their findings failed to support the irrelevance
dividend theory.
2.3.2. Residual Dividend Theory There are empirical studies that investigated the relationship
between dividend and investment policy (Allen and Michaely,
1995). They have concluded that firms could pay dividends
provided they did not have any positive net present value
projects to undertake. This is termed the residual dividend
theory, which states that a firm pays dividends after meeting
its investment needs while maintaining a desired debt-equity
ratio (Ross et al, 2000).
2.3.3. The Gordon / Lintner - Bird-In-The-Hand TheoryLintner (1962), and Gordon (1963), independently presented the
bird in hand theory. This theory states that investors always
prefer the cash in hand instead of a future promise of capital
gain in the form of dividend to minimize the future risk. Bird
in hand theory proposes that a relationship exists between firm
value and dividend payout. It states that dividends are less
risky than capital gains since they are more certain. Investors
would therefore prefer dividends to capital gains (Amidu,
2007). Because dividends are supposedly less risky than capital
gains, firms should set a high dividend payout ratio and offer
a high dividend yield to maximize stock price. Dividends
therefore are relevant to determining of the value of the firm.
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2.3.4. Walter’s ModelWalter (1963) postulated a model which holds that dividend
policy is relevant in determining the value of a firm. The
model holds that when dividends are paid to the shareholders,
they are reinvested by the shareholder further, to get higher
returns. This cost of these dividends is referred to as the
opportunity cost of the firm (the cost of capital), for the
firm, since the firm could use these dividends as capital if
they were not paid out to shareholders.
2.3.5. Agency Costs Theory of Dividend PolicyJensen and Meckling (1976) presented the agency theory based on
the conflicts among the shareholders and management of the
firm. It states that the percentage of the equity controlled by
insider owners should influence the dividend payout policy. In
adapting the agency theory argument of Jensen & Meckling
(1976), Rozeff (1982) constructs a model in which dividends
serve as a mechanism for reducing agency costs, thereby
offering a rationale for the distribution of cash resources to
shareholders.
Easterbrook (1984) gave further explanation about this agency
problem and stated the two forms of the agency problem: one is
the cost of monitoring the internal operations of the firm and
the other is the cost of risk avoidance on the part of the
management.
2.3.6. Tax-Preference TheoryThe tax preference theory state that because long term capital
gains are subject to less onerous taxes than dividends,
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investor prefer to have companies retain earning rather than
pay them out as dividends. This argument is based on the
assumption that dividends are taxed at higher rates than
capital gains. In addition, dividends are taxed immediately,
while taxes on capital gains are deferred until the stock is
actually sold. These tax advantages of capital gains over
dividends tend to predispose investors, who have favorable tax
treatment on capital gains, to prefer companies that retain
most of their earnings rather than pay them out as dividends,
and are willing to pay a premium for low-payout companies.
Therefore, a low dividend payout ratio will lower the cost of
equity and increases the stock price. This prediction is almost
the exact opposite of the bird in hand theory and challenges
the strict form of the dividend irrelevance hypothesis. In many
countries a higher tax rate is applied to dividends as compared
to capital gains taxes. Therefore, investors in high tax
brackets might require higher pre-tax risk-adjusted returns to
hold stocks with higher dividend yield. This relationship
between pre-tax returns on stocks and dividend yields is the
basis of a posited tax-effect hypothesis (Al-Malkawi et al.,
2010).
2.3.7. Clientele Effects of Dividends TheoryLa Porta, Lopez-de- Silanes, Shleifer and Vishny (2000)
concluded in their paper that dividend payments are an
important device in reducing agency conflicts and
therefore agency costs. Even if it is the
manager who determines the dividend payout policy,
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the dividend payments are an important device in mitigating
agency costs. Despite managers only having to deal with a part
of the total costs, the managers may also suffer from such
self-interested behavior (Manos, 2001). Low income shareholders
will prefer high dividends to meet their consumption needs
while high income shareholders will prefer less dividends so as
to avoid the payment of taxes. Therefore, when a firm sets a
certain dividend policy, there will be shifting of investors to
it and out of it until an equilibrium position is reached.
2.3.8. Catering TheoryBaker and Wurgler (2004) presented the catering theory. This
theory describes that managers should pay incentives to the
shareholders according to their needs and wants and in this
manner caters the investors by paying attractive and smooth
dividends when investors put stock price premium and by not
paying dividend when investors prefer non payers.
2.3.9. Signaling TheoryLintner (1956) carried out a research to determine how senior
managers (top management level) proceed to formulate the
dividend policy decisions. He estimated a model which consisted
of the following variables: earnings stability, plant and
equipment expenditures, willingness to use external financing,
firm size, ownership by control groups and use of stock
dividends. A sample of 600 listed companies was used in this
study. He made use of interviews to collect the data and it is
understood that not all the 600 firms’ manager(s) were
interviewed in this study. From his findings, he explains that
managers mostly looked at current earnings and target level of
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dividend payout to make the dividend decision.
Bhattacharya (1980) and John Williams (1985) presented the
signaling theory. According to the theory, managers have more
information about the firm’s real worth in comparison to
shareholders. The managers use the dividends as a source to
convey this information to the market. Dividend policy is a
means of signaling that cannot be faked, and managers use it to
convince the market that the picture of the company they
present is the true one. It is also a way for the company’s
managers to show the market that they have a plan for the
future and are anticipating certain results. Thus this theory
says that there is a positive relationship between the
information asymmetry and dividend payouts also that the
dividends should be paid according to the stock prices.
Asquith and Mullins (1983) posited that the initiation of
dividends has a significant positive impact on the firm’s stock
price. They interpret their evidence as consistent with the
signaling hypothesis in that managers use dividends to
communicate private information to investors; the investors
react favorably. Richardson et al (1986) and Jais et al (2009)
concurred to this assertion and added that dividend changes and
stock market reaction have a positive correlation. Dividend
increase is considered good news while dividend decreases as
bad news.
Dividend policy under this model is therefore relevant (Al-
Kuwari, 2009
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2.4. Empirical Evidence in Kenya
2.4.1. Relevance of dividend policy based on Signaling Theory(Luvembe, Njangiru, & Mungami, 2014) studied the effect of
dividend payout on market value of listed banks in Kenya by
using regression model. They considered a census survey of all
the banks listed in Kenya as at December 2010. There was an
indication that the dividends payout ratio had a significant
impact on the company’s future earnings growth. Further
indication was that high dividends paying companies are
believed to be more profitable, having greater cash flows and
thus some growth opportunities. On the other hand, companies
with earning instability are believed to be the ones having
difficulty to pay dividend. Thus the dividends payout ratio is
believed to influence the company’s future earnings growth.
This is in line with the findings of Nissim and Ziv (2001) who
investigated the relation between dividend changes and future
profitability, measured in terms of either future earnings or
future abnormal earnings and found out that that dividend
changes provide information about the level of profitability in
subsequent years incremental to market and accounting data.
They also found out that that dividend changes are positively
related to earnings changes in each of the two years after the
dividend change.
2.4.2. Relevance of dividend policy based on Clientele effect theoryWaithaka et al, (2012) studied effects of dividend policy on
share prices for companies in Nairobi Securities Exchange using
multiple regression. The study targeted the forty six listed
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and trading companies in the NSE with the target respondents
being staff members working for the companies. The study used a
random sample of thirty five members.
From the findings, the respondents indicated that increase in
firms’ stocks trading volume affected the share prices to a
very large extent: investors who wanted current investment
income owned shares in high dividend payout firms and size of
the trading volume of stocks affected the share prices to a
great extent; investors who did not require dividend
distributions owned shares in low dividend payout firms which
in turn affected the share prices to a moderate extent. The
respondents clearly explained that increase in firms’ stocks
trading volume greatly affected the share prices.
These findings are in line with Richardson, Sefcik and Thompson
(1986) where they tested a sample of 192 US firms that
initiated dividends for the first time during the period of
1969 through 1982 where they found that increase in firms’
stocks trading volume is due to the signaling effect or was a
product of investors in various tax clienteles adjusting their
portfolios.
2.4.3 Other evidence of dividend policy relevance Murekefu & Ouma, (2012), studied the relationship between
dividend payout and firm performance among the listed companies
in Kenya by using regression analysis. Dividend payout was
measured by the actual dividends paid out and firm performance
was measured by the net profit after tax. Secondary data was
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gathered from forty one companies listed in Nairobi Securities
Exchange. The data for regression analysis was drawn from the
financial statements for a nine year period 2002 to 2010.
There was an indication of a strong positive relationship
between dividend payout and firm performance. There was also an
indication that dividend is a significant factor in influencing
firm performance. It therefore shows that dividend policy is
relevant and therefore affects the performance of a firm hence
its value contrary to theories that view dividend policy as
irrelevant.
This is in line with the findings of Amidu, (2007) who
investigated whether dividend policy influences firm
performance in Ghana. The analyses were performed using data
derived from the financial statements of listed firms on the
GSE during the most recent eight-year period. Analysis was done
using Ordinary Least Squares model to estimate the regression
equation. The significance and the positive coefficient of the
regressor in his study; dividend policy, indicated that when a
firm has a policy to pay dividend it influences its
profitability.
Thus study supports the second school of thought that dividend
policy is relevant to the performance of firms.
Mbuvi & Gekara, (2015) studied the effect of dividend policy on
value creation for shareholders of companies listed in the
Nairobi Securities Exchange. The study sample was 59
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respondents from finance department. The target population was
the finance managers of the companies that are publically
listed at NSE. The population for the study was the 59
companies listed at NSE, with a minimum authorized and fully
paid up capital of Kshs.50million and net asset of Kshs.100
million as per the requirement of CMA.. Self-administered,
questionnaires for primary data and document analysis as the
source of secondary data collection was used. The validity of
the data was established by seeking opinions of the experts in
the field of study, especially those who had experience of more
than one year.
The findings indicated that management viewed dividend
announcement as causing only temporary share price adjustments
and therefore the effect on firm value was negligible, market
reaction to announcement of special dividends is negatively
related to the firm’s investment opportunity set.
These findings were in line with those of Lie (2000), who after
investigating the relationship between excess funds and firm’s
payout policies found a demonstration that there is a
differential reaction to announcements of dividend increases.
An indication of dividend irrelevance
Other findings include
The relevance (bird in the hand theory); shareholders
preference to receiving dividend payouts sooner than later
because of the uncertainty of future dividends. The
respondents clearly indicated that a decrease or omission
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of a dividend payout is usually accompanied by a decrease
in the share price
Indication that management declared dividend payouts from
surplus earnings only after their satisfied desired
investments have been financed. The study also observes
that dividends reduced the opportunity for managers to use
free cash in a self-serving manner supporting the Agency
theory
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3. OBSERVATION, DISCUSSION, CONCLUSION & RECOMMENDATIONS
3.1. Finance Managers’ view on dividend policy
Majority view against reduction of dividends per share
Majority try to maintain a smooth dividend from year to
year
Minority pay dividends to attract investors
Managers should consider other kind of incentives in
place of dividend to shareholders
3.2. DiscussionThe question of whether to pay or not to pay dividends has
been addressed from the perspective of the welfare
implications to the owners. The problem of what kinds of
incentive in place of dividends managers need to carry to
reward the owners is equally important and remains to be
addressed.
Kenyan stock market is in a developing young state. Most of
the research conducted and published in various financial
journals have no single explanation regarding irrelevance or
relevance of dividend policy. Most of the articles commence
with the dividend puzzle and conclude with more complicated
puzzle. Much study on dividend policy in Kenya is still
missing. The study did not come across dividend policy as the
sole independent variable with firm value as the dependent
variable. This could be the missing link.
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3.3. Conclusion and Recommendation
From the study however one thing is evident. The decision to
pay or not pay dividends is affected by many reasons. Gill et
al (2010) describe dividend payout as important for investors
because dividends provide certainty about the company’s
financial well-being, dividends are attractive for investors
looking to secure current income, and dividends help maintain
market price of the shares. Companies that have a long-
standing history of stable dividend payouts would be
negatively affected by lowering or omitting dividend
distributions. These companies would be positively affected by
increasing dividend payouts or making additional payouts of
the same amounts because this sends a positive signal to the
stock market. Companies without a dividend history are
generally viewed favorably when they declare new dividends.
Therefore the study gives more weight to relevance of dividend
policy
Further research should be conducted on Kenyan market on
financial firms to check consistency with the results. Future
studies should focus and compare on impacts of dividend policy
and market value of firms for longer periods. Future research
could be carried out on more financial institutions and in
various Kenya sectors.
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3. REFERENCES:
Amidu, M. (2007). How does dividend policy affect performance
of the firm on Ghana stock exchange? Investment Management and
Financial Innovations, Volume 4, Issue 2.
Azhagaiah, R. and Priya, S. N. (2008). “The impact of dividend
policy on Shareholders’ wealth”. International Research Journal of Finance
and Economics 20. 180 - 187.
De Angelo, H., De Angelo, L. (2006). The irrelevance of the MM
dividend theorem, Journal of Financial Economics, 79, 293-315.
Luvembe, L, Njangiru, J.M., Mungami, E.S. (2014) Effect of
Dividend Payout on Market Value of Listed Banks in Kenya,
International Journal of Innovative Research & Development. Vol 3 Issue 11
Mbuvi, J.N., & Gekara, G.M. (2015) Effect of Dividend Policy on
Value Creation for Shareholders of Companies Listed In the
Nairobi Securities Exchange, Journal of Economics and Finance Volume
6, Issue 2, 35-41
Miller, M.H., Modigliani, F. (1961). Dividend policy, growth,
and the valuation of shares. Journal of Business, 34, 411- 433.
Mitton T., (2004). Corporate governance and dividend policy in
emerging markets. Emerging Markets Review, 5, 40-426.
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Murekefu, T. M., & Ouma, O. P. (2012). The relationship between
dividend payout and firm performance: a study of listed
companies in Kenya. European Scientific Journal.
Nissim, D and Ziv, A (2001), Dividend Changes and Future
Profitability. Journal of Finance, 56, 2019–65.
Pandey, I. M. (2005), Financial Management 9th ed., New Delhi:
Vikas Publishing House PVT Ltd.
Ross, Westerfield and Jaffe. (2002), Corporate Finance 6th ed.,
United States: McGraw-Hill/Irwin.
Waithaka, S., Ngugi, J. K., Aiyebei, J. K., Itunga, J. K., &
Kirago, P. (2012). The Effects of Dividend Policy on Share
Prices; A case of Companies in Nairobi Securities Exchange.
(BAM), Prime Journal of Business Administration and Management, 2 (8),
646-948.
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APPENDICES
Appendix 1: Illustration of two schools of thought on dividend policy
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Appendix 2: Formula of M-M’s Approach
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Appendix 3: Formula of Walter’s Model
Appendix 4: Formula of Gordon’s Model
