THE MODERATING EFFECT OF OWNERSHIP CONCENTRATION ON DIVIDEND PAYMENTS AND FIRM VALUE: THE CASE FOR NAIROBI SECURITIES EXCHANGE
Abstract
Empirical studies exploring the relationship between dividend policy, ownership concentration, and firm value have presented mixed findings. Several studies have explored this relationship across different contexts and markets, resulting in diverse and sometimes contradictory conclusions. One of the aspects of corporate ownership and management theory that researchers have increasingly focused on is the influence of large shareholders on value-creating metrics. The objective of this paper was to examine the effect of dividend payment on firm value and the moderating effect of ownership concentration on the dividend payment and firm value relationship at the Nairobi Securities Exchange. Dividend signalling and shareholder monitoring hypotheses were the key theories supporting this study. The study utilised longitudinal data for 2008-2017, the target population was sixty-six companies trading securities at the NSE in that period. Empirical results reveal that dividend payment has a positive effect on the firm value, which supports the signalling hypothesis, and ownership concentration negatively moderated the relationship between dividend payment and firm value, this implies that firms with high ownership concentration will not be affected by the changes in the amount of dividends, alternatively, firms with dispersed ownership will be negatively affected if they reduce the amount of dividends. Regular payment of dividends ensures that dominant shareholders don’t disadvantage minority investors. Policymakers should consider stricter regulations and enforcement to ensure that large shareholders do not exploit their control at the expense of minority shareholders. Enhancing investor education and awareness can empower minority shareholders better to understand their rights and the implications of dividend policies. This study recommends that the regulatory body enforce stronger transparency measures to ensure dividends remain an effective signal of firm performance.
JEL: G14; G32; G35
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DOI: http://dx.doi.org/10.46827/ejefr.v9i1.1949
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