Bank Characteristics and Dividend Payout of Selected Commercial Banks in Kenya
DOI:
https://doi.org/10.53819/81018102t4084Abstract
Dividend payout for Tier I banks in Kenya has remained relatively stagnant over the years even with improved financial performance. Central Bank of Kenya reports show that Kenya’s banking sector is very profitable with the average return on asset being about 2.6 per cent for the years between 2016-2021. Thus, this study sought to determine the effect of bank characteristics on dividend payout of Tier I banks. The study specifically aimed at objectively quantifying effect of bank size, liquidity, and profitability on dividend payout. Target population was all nine (9) Tier I banks listed at the Nairobi Securities Exchanges (NSE). Secondary data was acquired from audited and published financial reports of the nine (9) banks for the period between 2016-2021 using document review guide. Descriptive analysis and panel regression were applied for data testing. Independent variables were bank size, liquidity, and profitability while dependent variable was dividend payout. Market capitalization was used as a measure for bank size, book-to-market value as a measure for liquidity and earnings per share as a measure for profitability. Results indicated liquidity had a small negative statistically significant effect on dividend payout while both bank size and profitability had negative statistically insignificant effect on dividend payout. The study thus determined that bank characteristics had insignificant effect on dividend payout for Tier I banks. The study recommends that Central Bank of Kenya consider reducing Cash Reserve Ratio (CRR) and NSE consider an alternative stock classification system which will categorizes stocks in same sector based on size which will give a clear insight of the risk-return trade off characteristics at the NSE.
Keywords: Dividend Payout, Commercial Banks, Bank Characteristics, Market Capitalization, Book-to-Market value, Earnings per Share, Kenya.
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