Effect of Agency Costs on the Relationship between Dividend Policy and Value of Firms Listed at the Nairobi Securities Exchange


  • Maxwell Onyango University of Nairobi
  • Winnie Nyamute University of Nairobi
  • Joshua Wanjare University of Nairobi




Firm value is an indispensable focus for every establishment since it depicts stockholders’ fortunes. Dividend policy is thought to be a key predictor of firm value. Payout-policy nonetheless, still remains a contested topic. The objective of this paper was therefore, to examine how the relationship between dividend policy and value of firms listed at the Nairobi Securities Exchange is mediated by agency costs. Balanced panel data was obtained from 52 firms listed at the NSE between 2011 and 2020. Firm value was measured using Tobin’s Q (ratio of market value to book value). The proxy for dividend policy was a composite of interim dividend ratio (frequency of dividend payment) and dividend payout ratio (quantum of dividend). Agency costs was measured using asset utilization ratio. Correlation and general least squares (GLS) fixed-effect model were used to analyze the data. The study established that agency costs mediated the relationship between pay-out policy and corporate value. The findings contribute to knowledge by proving that the relationship between payout-policy and firm value is mediated by agency costs. Thus, managers should pay dividends from the free cash flow to mitigate agency costs since minimal agency costs enhance firm value. The findings are also valuable to the Nairobi Securities Exchange and the Capital Markets Authority on investor training and policy formulation.

Keywords: Dividend Policy, Dividend Relevance, Dividend Irrelevance

Author Biographies

Maxwell Onyango, University of Nairobi

Department of Finance and Accounting, Faculty of Business and Management Sciences, University of Nairobi

Winnie Nyamute, University of Nairobi

Department of Finance and Accounting, Faculty of Business and Management Sciences, University of Nairobi

Joshua Wanjare, University of Nairobi

Department of Finance and Accounting, Faculty of Business and Management Sciences, University of Nairobi


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How to Cite

Onyango, M., Nyamute, W., & Wanjare, J. (2023). Effect of Agency Costs on the Relationship between Dividend Policy and Value of Firms Listed at the Nairobi Securities Exchange. Journal of Finance and Accounting, 7(6), 48–61. https://doi.org/10.53819/81018102t2192