Financial Determinants of Dividend Policy Payout among Commercial Banks in Kenya

Abstract

Dividend payout policy for commercial banks differ as each company decides on what, how and when to pay dividend to its shareholders. Some banks pay higher and other pay less dividend despite the fact that they operate under same business environment. The questions how do the commercial banks set their dividend and why do banks pay dividend, impose the problem in dividend payout in Kenyan context. These reveal that there is no unified picture regarding dividend payout policy and therefore remain one of the most contested disputes within the field of corporate finance. The general aim of the study was to investigate the financial determinants of dividend payout policy among commercial banks in Kenya. Specifically, the study sought to achieve the following objectives: To establish the influence of levels of profits on dividend payout policy among commercial banks in Kenya; To establish the influence of liquidity on dividend payout policy among commercial banks in Kenya; To establish the influence of bank size on dividend payout policy among commercial banks in Kenya and lastly to establish the influence of leverage on dividend payout policy among commercial banks in Kenya. This study used descriptive research design. The researcher targeted all the 42 commercial banks in Kenya. Secondary quantitative data was collected using secondary data collection sheet. The data was analyzed by descriptive and inferential analysis that involved multiple linear regression and correlation analysis. The results indicated that levels of profits had significant influence on dividend payout policy of commercial banks in Kenya (p-value < 0.05), liquidity had significant influence on dividend payout policy of commercial banks in Kenya (p-value < 0.05), bank size had significant influence on dividend payout policy of commercial banks in Kenya (p-value < 0.05) and leverage has no significant influence on dividend payout policy of commercial banks in Kenya (p-value < 0.05). The study recommended that banks should work towards improving their profit levels to facilitate dividend payout policy. The study in addition recommended that, bank managers should ensure they are able to fulfill both expected and unexpected demands of cash on an ongoing basis. Further the study recommended that bank managers should work towards the growth of the banks, when a firm becomes larger, and its operational activities are more efficient.