THE EFFECT OF DIVIDEND POLICY ON MARKET
CAPITALIZATION FOR FIRMS LISTED AT THE NAIROBI
SECURITIES EXCHANGE
SYLVIA MURUGI WAGIO
A RESEARCH PROJECT SUBMITTED IN PARTIAL
FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF
THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION
(FINANCE OPTION) SCHOOL OF BUSINESS, UNIVERSITY OF
NAIROBI
NOVEMBER, 2018 DECLARATION
ii
ACKNOWLEDGEMENT
iii
DEDICATION
iv
TABLE OF CONTENTS
DECLARATION...... ii
ACKNOWLEDGEMENT ...... iii
DEDICATION...... iv
TABLE OF CONTENTS ...... v
LIST OF TABLES ...... viii
LIST OF FIGURES ...... ix
LIST OF ABBREVIATIONS ...... x
ABSTRACT ...... xi
CHAPTER ONE: INTRODUCTION ...... 1
1.1 Background ...... 1
1.1.1 Dividend Policy...... 2
1.1.2 Market Capitalization ...... 4
1.1.3 Dividend Policy and Market Capitalization ...... 5
1.1.4 The Nairobi Securities Exchange ...... 6
1.2 Research Problem ...... 7
1.3 Research Objective ...... 10
1.4 Value of the Study ...... 10
1.4.1 Contribution to theory ...... 10
1.4.2 Contribution to Practice ...... 10
1.4.3 Contribution to policy...... 10
CHAPTER TWO: LITERATURE REVIEW ...... 11 v
2.1 Introduction ...... 11
2.2 Theoretical Review...... 11
2.2.1 Dividend Irrelevance Theory ...... 11
2.2.2 The Bird in Hand Theory ...... 12
2.2.3 The Signaling Theory of Dividends ...... 13
2.2.4 Tax Preference Theory ...... 13
2.3 Determinants of Market Capitalization ...... 14
2.3.1 Dividend Policy...... 14
2.3.2 Firm Size ...... 15
2.3.3 Management Efficiency ...... 16
2.4 Empirical Studies ...... 17
2.5 Summary of the Literature Review ...... 20
2.6 Conceptual Framework ...... 21
CHAPTER THREE: RESEARCH METHODOLOGY ...... 22
3.1 Introduction ...... 22
3.2 Research Design ...... 22
3.3 Population ...... 22
3.4 Data Collection ...... 22
3.5 Data Analysis ...... 23
3.5.1 Analytical Model ...... 23
3.5.2 Tests of Significance ...... 24
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CHAPTER FOUR: DATA ANALYSIS, FINDINGS AND INTERPRETATION
...... 24
4.1 Introduction ...... 25
4.2 Descriptive Statistics ...... 25
4.2 Regression Analysis ...... Error! Bookmark not defined.
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
...... 34
5.1 Introduction ...... 34
5.2 Summary of findings...... 34
5.3 Conclusion ...... 34
5.4 Recommendations ...... 35
5.5 Suggested areas for further research ...... 36
References ...... 38
APPENDIX I: Firms Listed in the NSE ...... 42
Appendix II: Firm Revenue (Logs) ...... 43
Appendix III: Firm Profits (Logs) ...... 45
Appendix IV: Firm Size/Assets (Logs) ...... 47
vii
LIST OF TABLES
Table 4.1 Normality Test Table …………………………………………………… 27
Table 4.2 Collinearity Test Table ………………………………………………….. 27
Table 4.3 Descriptive Statistics Table ……………………………………………... 28
Table 4.4 Correlation Analysis Table ……………………………………………… 29
Table 4.5 Regression Model Summary …………………………………………….. 30
Table 4.6 ANOVA Table …………………………………………………………. 31
Table 4.7 Regression Coefficients Table ………………………………………… 31
viii
LIST OF FIGURES
Figure 2.1 Conceptual Framework ………………………………………………… 21
Figure 3.1 Operationalization of Variables ……………………………………..…..24
ix
LIST OF ABBREVIATIONS
CDS Central Depository System
CDSC Central Depository Systems Corporation
CMA Capital Market Authority
DIV Dividend
DPR Dividend Payout Ratio
DPS Dividend per share
EPS Earnings per share
FISMS Fixed Income Securities Market segment
IPO Initial public offer
MIMS Main Investment Market Segment
MM Modigliani and Miller
MPS Market price per share
NSE Nairobi Securities Exchange
POR Payout ratio
SPSS Statistical Package for Social Sciences
x
ABSTRACT
xi
CHAPTER ONE: INTRODUCTION
1.1 Background
As business progressed into earliest form of companies, dividend policies also evolved. The pioneers of investment ideas backed investors’ expectations with ventures. The investors owned “parts” or shares in fractions of eighth, sixteenth, and the like (Baker & Kent, 2009). These organisations were more like partnerships rather than corporations (Baskin, 2009). This practice aimed at raising more capital for every tradeoff. Also, these businesses together with the joint stock firms had no fixed capital that could last longer than the project for which they had been formed. During that time, the payment of dividends followed a basic policy commonly referred to as a liquidating dividend policy.
Shareholders are the company’s owners and they make claims to a share of the firm’s profits. They thus get their share of profits through dividends. The higher the firm’s profits, the more likely it is to offer dividends and the more the shareholder will receive as her/his share. Ranti (2013) observed a positive association between market capitalization and dividend payout of firms. Baker & Powell (2000) affirmed that a firm with a high market capitalization is more likely to pay dividends to shareholders.
The earnings realized by the firm are a good indicator of the firm’s financial health.
Thus market capitalization plays a critical role in dividend pay-outs.
This study was guided by the dividend irrelevant theory, “the bird in hand theory” and the signaling theory of dividends. The dividend irrelevant theory argues dividend policy has no effect on the market value of a firm’s stock i.e. the market capitalization of the firm. The firm’s value is a resultant of total value created by the assets, therefore the income that comes from production by the firm rather than how the
1 income was produced, should be shared between the dividends and retained earnings.
The “bird in hand theory” on the other hand argues that higher cost of capital results from low payout ratio. It suggests that investors are more interested in dividends as they are more predictable than capital gains and that higher capital gains to dividends ratio is required due to increased risk by investors. The “Signaling Theory” of
Dividends posits that that the price of a firm’s stocks normally changes when dividend payout ratio changes. It assumes that in reality the perfect capital markets do not exist, dividend payouts portrays some information which eventually affects the stock price of the firm.
Small cap firms ordinarily have a market cap of between $150 million to $500 million, even though numerous financial specialists extend that definition to incorporate organizations with a market cap of as high as $1 billion. These organizations are considered unsafe investment vehicles however they have registered fast growth. Mid cap organizations can have market cap extending somewhere in the range of $500 million to $5 billion (Chhachhi, 2008). These organizations have accomplished a level of stability while still undergoing development on their growth towards larger capitalization. Lastly, large cap firms have market caps of over $5 billion. This classification incorporates the blue chip organizations that are commonly preferred by a large number of investors. Despite the fact that speculators in stocks in any market capitalization classification incur risk, shocks have customarily been more improbable among these blue chip organizations (Chandra, 2007).
1.1.1 Dividend Policy
Baker (2009) defines dividend policy as the financial policies that are put in place regarding the payment of dividends at present or paying increased dividends later, or whether to issue dividends and what amount, which is usually guided by the firm’s
2 long-term earning power. Brennan (1970) defines dividend policy as a guide or a path towards where investors will maximize their expected wealth. It is also where individuals choose the tatal personal tax and company tax leverage and have the option to either receive cash dividends or have capital gains. Botha (1985) defines dividend policy as a concrete method of handling dividends and as an important variable while making decisions and retained earnings as the residue. Dividends are the only sure way of ensuring that profits are fairly distributed profits as variations in the dividend payout ratio could affect shareholders. The following are the various types of dividends policies in use by firms.
Cash Dividend policy pertains to the dividend that is the shareholdersare distributed to from the earnings of a firm in the form of cash. The shareholders chose to either reinvest the money or to take the cash being offered. Firms offer cash dividends when they have excess cash usually from high profits. Such dividends are always taxed.
Stock Dividend policy refers to the dividend that is distributed to the shareholders from the earnings in the form of additional fully paid shares. In stock dividends, a firm’s cash is conserved. Also, these dividends are not taxable until the shares are sold. Firms result to this type of dividend when they do not have enough cash.
Property Dividend policy refers to the dividends that are paid to the shareholders of the firm in the form of some property. For example, firm shipping the products made by it to the shareholders. Property dividend is the alternative to cash and stock dividend. These dividends are taxable at the fair market value of the property. Firms result to this when they do not have enough cash. Liquidating Dividend policy refers to the dividends that are paid to the shareholders by the firm at the time of partial or full bankruptcy or while ceasing business operations. Usually, the shareholder is paid
3 from the firm’s capital base depending on the number of shares they own. This type of dividend is not taxable.
1.1.2 Market Capitalization
Market capitalization also refers to the actual value of a firm which the investment community uses to determine a company's size (Davidson, 2011). Market capitalization is also the estimated value of an enterprise (Walter, 2003). Market capitalization of a firm represents its worth in terms of its market price and the number of outstanding shares of a publicly traded company where it roughly calculates the value of the firm and can be used to derive public opinion and as a way of determining a firms net worth (Jaya, 2011). As such, market cap is a measure of the present worth of a firm in the stock market. It is also a measure of the future prospects as perceived by its shareholders. This is so because it is a reflection of what investors are willing to part with in exchange for its stock (Black & Fischer, 2006). Various categories of company sizes exist in terms of their market capitalization i.e. small cap, mid cap, or large cap companies.
Small cap companies are the firm with a market capitalization of between $150 and
$500 Million. Some investors however extend that category to include firms with a market cap of up to $1 billion. This category of firms are generally considered relatively risky but usually experience rapid growth. Mid cap companies on the other hand have market caps between $500 and $5 billion (Chachi & Davidson, 2008).
When Mid cap companies achieve a certain degree of stability and register a continued growth over time, they get classified as large market capitalization firms.
Large cap companies on the other hand have a market cap of $5 billion or more. This group usually consists of the big blue chip companies that are well known to a majority of the investors. Investors in the large cap firms rarely experience surprises
4 as their investments are usually in the blue chip companies (Chandra, 2007). Further, since these categories are always changing, investors agree that the most reliable way of determining the company size of a firm is its market capitalization as this is a reflection of its market value. This in turn creates expectations about its future among the investors. This is especially true in the case where a small company with low sales volume, but has a great growth ability registers a large market cap due to the investors bidding up its stock price (Kirshman, 2012).
Nevertheless, these classes of market capitalization are not strict divisions and the pre-defined categories have always gone up (Litzenberger & Ramsaswamy, 2012). In order to make good investment decisions, an investor is supposed to have an understanding of the market capitalization of the particular firm. Also, in order to reduce risk, an investor is required to diversify the investments among the various companies with different market caps since they all perform differently at the stock market. This will in effect help reduce risk while at the same time maximizing returns in the long term (Lloyd, Jahara & Page, 2005). Market capitalization in this study was operationalized through shares volume and share prices.
1.1.3 Dividend Policy and Market Capitalization
Waiganjo (2010) sought to establish the effect of dividend policy on market capitalization of firms listed in the NSE. The study established that the dividend policy, return on assets and interest rates significantly affected the market capitalization of listed firms. The most significant factor was return on assets followed by dividend policy and interest rate respectively.
Merkel (2010) investigated the effects of Dividend Policy and market capitalization of firms operating in the Berlin stock Exchange. He discovered that dividend policy
5 directly affected market capitalization in that when firms announced a divided at the end of a trading period, their share price went up as opposed to when firms issued a profit warning, where the firm’s shares go on a downward trajectory thus reducing their market capitalization. This however did not seem to affect the large cap companies in a major way.
Chachi & Davidson (2008) investigated the effect of dividend policy on the market capitalization on the firms listed in the Jordanian Stock exchange. The results indicated that firm size, growth opportunities, block-holders, and institutional investors positively impacted the market capitalization of the firms. Further, liquidity, profitability, and the dividend payout ratios did not have a significant effect on the market capitalization of the firms.
Mokaya, Nyangara & James (2013) discovered a significant relationship between the dividend policy adopted by the banks and the banks’ market capitalization. They argue that cash dividends are more preferable to other types of dividends, for a majority of the stakeholders. In contrast, institutional investors opt for stock dividends. This is in line with the proposition that investors view dividends as pointers to firms’ financial stability with reference to their size. In such cases, this type of investors behave as short term investors and in no way regard themselves as owners of the company. There is therefore a significant relationship between dividend policy and market capitalization in a firm.
1.1.4 The Nairobi Securities Exchange
In Kenya, the only organized stock market is the Nairobi securities exchange (NSE).
The NSE dates back to 1920s when it commenced as an informal way of trading in shares. It is the principal securities exchange of Kenya and the fourth African largest
6 stock exchange in terms of market capitalization (NSE, 2016). Market capitalization of the firms at the NSE rose steadily from 2011 through 2014 but dropped in 2015.
This was reflective of NSE’s drop in value in 2015. Market capitalization is essential in finding out how the dividend policy affects the listed firms since it is the benchmark used by the investment community to gauge the size of companies trading through the platform. Market capitalization of frequently traded individual stocks is used to measure stock market index. NSE has over 24 brokerage firms that participate in the market and 68 listed companies, with a total market capitalization of about
2542.97billion (NSE, 2016).
The NSE is presently advanced with the creation of the capital market authority
(CMA) which is the market’s regulator and the introduction of the central depository system (CDS). The Capital Markets Authority is the government regulator that issues licenses and regulates the capital markets in Kenya, in addition it approves public offerings and listings of securities among the listed companies at the NSE. It also monitors trading at the NSE on daily basis and is responsible for suspending brokerage firms from the market in case of misconduct. The NSE has been growing in size over time with an initial listing of under 20 firms in 1990s to 68 firms in 2014.
The market has also been listed as a limited company at the NSE. This growth in size of the market is attributable to the management efficiency that the market has experienced over time.
1.2 Research Problem
Dividends and capital gains are primarily seen as incentives to those who own the company through shares. A Dividend is a section of a firm’s earnings that is distributed among those who hold a company’s shares and is usually paid
7 proportionately to the number of shares held (Mancinelli & Ozkan, 2006). When a firm uses a cash dividend policy and offers cash dividends to the shareholders, it reduces its share of retained earnings. This in turn affects a firm’s ability to plough back the returns through reinvestment, which ultimately affects the firm’s future expansion and thereby affecting its market capitalization. The total effect of a cash dividend payout is that it diminishes the potential capital gain that would increase the firms’ market capitalization (Miller & Scholes, 2010).
In the Nairobi Securities Exchange market, firms with large market capitalization are usually pay cash dividends continuously over time. Again firms paying higher dividends have easy access to the capital markets while the dividends paid also influence the valuation of those firms’ stocks. This results in a larger market capitalization for such firms.
Baskin (2009) reviewed the relationship between share price and dividend yield of firms trading at the New York stock exchange. The result a significant relationship between the share price change and yield of quoted companies. His study was however based in the United States which is a developed country with an advanced economy.
Husseiney & Mgabame (2011) studied the correlation between share price movement and dividend policy in the Listed Companies in the London Stock Exchange. The study found an inverse but significant relationship between stock price movement and dividend payout ratio. Again this was a study based on a first world economy. Nazir and Nawaz (2012) studied the effect of stock price on dividends of listed firms in
Karachi stock exchange between 2003 and 2008. The results were that stock movement has significant and inverse relationship with dividend yield of the quoted
8 companies in the stock exchange. This study was however conducted in a different environment than that of the Nairobi Stock Exchange.
Omollo (2011) studied the effect of dividend policy on firm value on Kenya
Commercial Bank. His findings were that dividend payout ratio has a significant effect on the value (market capitalization) of the firm. Mbuvi (2010) studied the effect of dividend policy on creating value for shareholders in listed companies at the NSE.
The study involved 59 listed companies with fully paid up capital. The study found that the omission or decrease of dividend payout was accompanied by a decrease in share price. These studies are however older than five years, thus there is need for new information with regard to the effect of dividend payout on dividend policy.
Munyua (2009) studied the effects of dividend policy on stock prices for firms listed in the Nairobi Stock Exchange. He sampled 61 listed companies between 2004 and
2013. He discovered that the expectation that a company will announce dividends in the near future, creates a demand for such stocks hence a rise in its price and market capitalization. He used share price as a function of dividends, profitability and leverage.
In view of the foregoing, none of these studies investigated the effects of dividend policy on market capitalization. Again, none of these studies has used dividend policy, firm size and management efficiency as the study variables. This study therefore seeks to answer the question: what is the effect of dividends policy on market capitalization for firms listed at the Nairobi securities exchange?
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1.3 Research Objective
To determine the effect of dividend policy on market capitalization at the Nairobi
Securities Exchange.
1.4 Value of the Study
1.4.1 Contribution to theory
This study may add to the existing body of knowledge on the effect of dividend policy on the market capitalization of companies listed in the NSE. It may therefore act as a reference where other interested scholars and academicians may refer for further research on the same study subject.
1.4.2 Contribution to Practice
This study would be helpful to the management of the listed firms in Kenya as it highlights the effect of dividend policy on the market capitalization of companies listed in the NSE. The findings may guide the listed firms in their dividend payouts to increase their market capitalization. The study would also motivate the management to create or affirm policies that maximize market capitalization in order to increase their shareholders wealth.
The study may act as a guide in the exploration of the connection between a firm’s market capitalization and its dividend policy. It may help firms in raising their market capitalization through both share prices and quantity traded.
1.4.3 Contribution to policy
The research may also be important to different policy makers including the government and capital markets authority while formulating relevant regulations.
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CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter emphasizes on theories brought forward by other researchers in the field of study. It includes literature and empirical studies on dividends policy and its effect on market capitalization.
2.2 Theoretical Review
2.2.1 Dividend Irrelevance Theory
Brought forward by Miller and Modigliani in 1961, the dividend irrelevance theory states that dividend policy has no effect on the market value of a firm’s stock that is, the market capitalization of the firm. They argued that the firm’s value was as a result of the total value created by the assets, the income that comes from production by the firm rather than how the income was produced should be shared between the dividends and retained earnings.
Modigillian advanced several assumptions some of which were found to be unrealistic in that they ignored taxes and brokerage fees which in reality were present, the cost of floating new issues also affects the assumption that internal and external financing were equivalent, making it untrue. They ignored the fact that payment of dividends affected the value of the firm since shareholders prefer dividends compared to the inconveniences of selling shares to obtain capital gains.
Under uncertainty, it is incorrect to assume that the discount rate will remain the same. Regardless of the discount rate, they argued that investors desired to diversify their portfolios therefore the discount rate for external and internal financing will differ whether they use internal or external sources of financing. Dividend policy is irrelevant if the assumption of perfect certainty is dropped and uncertainty is applied,
11 though according to other authors dividends are considered relevant under conditions of uncertainty. This theory is relevant to the current study since it explains the importance of dividend policy to the value of a firm.
2.2.2 The Bird in Hand Theory
This theory was developed by Gordon (1963) and Litner (1964) as a response to
Millers’ dividend irrelevance theory. The theory states that MM was incorrect in assuming that the firms cost of capital was not affected by dividend policy, they argued that higher cost of capital resulted from low payout ratio. Litner & Gordon suggested that compared to capital gains, dividends are more preferable as they are more predictable and therefore most investors go for them. They indicated that the higher the capital gains to dividend ratio, the larger the total returns required due to increased risk by investors. Due to the nature of investors being risk averse the investor believes dividends are more certain than income from future capital gain
(Pandey, 2010).
Gordon’s model becomes irrelevant when all assumptions are based on reality, he claims that the dividend policy does not affect the value of the share, in addition under situations of uncertainty investors tend to use a higher rate of return for firms paying dividends later in the year or later, in comparison with dividends expected in the near future, investors prefer their dividends now than later. Kirshman (1933) argues that a higher share price is demanded on a share with a higher dividend payout ratio than a share with lower dividend payout ratio hence the statement “a bird in hand is worth two in the bush”, therefore willingness of investors to pay a higher for the stocks with the higher dividend policy. This theory is relevant to the current study since it explains the importance of dividend payout.
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2.2.3 The Signaling Theory of Dividends
First described by Lintner (1956), the Signaling Theory of Dividends argues that the price of a firm’s stocks normally changes when dividend payout ratio changes.
Despite Modigliani & Miller (1961) supporting the theory of dividend irrelevance they assumed that no perfect capital markets can exist in the real world. Dividend portrays some information which may have an effect in the market price of the stock.
Bhattacharya (1979) undertook studies on signaling theories and proposed that dividends is a perfect indicator of cash flows that will be expected in future. When managers raise the amount of dividends paid to shareholders, investors can use that gesture to predict the expected cash flows in the foreseeable future. The contention that external investors may have flawed information with regard to a company’s future cash flows and capital gains is the basis of the theory. The theory also assumes that dividends are taxed at a higher rate compared to capital gains. Bhattacharya
(1979) states that in these circumstances even with tax disadvantage on dividends, companies would choose to pay out dividends in an endeavor to send positive signals to external investors and shareholders. This theory describes the importance of dividend payout and is thus relevant to this study.
2.2.4 Tax Preference Theory
Tax Preference Theory was first developed by Litzenberger & Ramaswamy (1982).
The theory suggests investors would prefer lower dividend payout companies for tax purposes. This theory is derived from observation that investors in the American stock market preferred companies with low payout ratio and came up with three possible reasons as to why. Firstly, due to time factor of money investors prefer to defer tax than to pay it now, as it has a higher effective cost of capital when paid now than in
13 the future, long term gains allow for tax deferment when selling stock as they can pay when they sell it, hence dividend is not preferred.
Secondly, on issues of tax most company’s preferred to retain their earnings in effort to avoid extra taxes from capital gains despite the rates being equal in the 1980’s in the USA the companies preferred to defer. Thirdly, it was convenient for beneficiaries after a demise of a shareholder to sell the stocks inherited at base cost and therefore avoiding capital gains tax payment.
Singhania (2006) Overall companies have the moral obligations to reduce tax as they protect the shareholders interest hence the dividend policy decision is integral as it influences net income of the company and the net value of the shareholders, growing companies prefer zero dividend policy and with the rate of tax it also affects how much dividend as investors prefer to avoid tax.
2.3 Determinants of Market Capitalization
2.3.1 Dividend Policy
Brennan (1970) defines dividend policy as a policy setting where investors maximize their expected wealth and where individuals choose the amount of personal tax and corporate tax leverage and have the choice to either receive cash dividends or have capital gains. For preferred shares, dividends are generally a fixed amount while for common shares, the dividend varies with the amount of profits and the cash that the company has in hand. Larger firms usually pay higher dividends compared to smaller firms (Garver, 2011). Baskin (2009) states that most companies pay dividends in cash especially when they have a policy to pay stable dividends. This gives them an obligation to shareholders to make regular payments from time to time. Firms that continuously pay dividends are more likely to be performing well financially. The
14 more shares they sell, the larger their market capitalization. Firms should therefore have the necessary funds needed to meet this obligation since the cash reserves will greatly reduce after payment of dividends, the company’s net worth may drop and so will the market price of the shares (Bhattacharya, 2009).
Potential stock buyers always look at the profit column of firms to determine its stability. They then make decisions on which stock to go for. The higher the profits of a given firm, the more attractive the share is at the securities exchange market thus giving it a higher price (Mehun, 2012).
2.3.2 Firm Size
Another factor that researchers have evaluated in relation to the market capitalization of firms is the size of the firm normally measured in terms of assets. The results of these studies have also been conflicting since researchers have not agreed on whether size actually influences market capitalization of firms. Goddard et al. (2014) identified only a slight relationship between the size of a firm and its market capitalization. The size of the firm or any other business entity in terms of the assets is a significant determinant of market capitalization due to various issues. Firms that have a large asset size are able to expand their operations geographically to regions where competition is not very high or to regions where the market is largely untapped.
Such a move would increase the customer base of the firm significantly and this would also lead to increased sales (Goddard et al., 2014).
Travlos, Trigeorgis & Vafeas, (2015) conducted a study on the effect of firm size on its market capitalization in an emerging Stock Market. They discovered that larger firms have a better ability to raise capital and expand. They are able to reach a bigger customer base which translates to more sales and higher profits. This is interpreted as
15 good performance at the bourse and they trade more shares, and at a higher price thus increasing the firms’ market capitalization. Therefore there is a clear connection between the size of a firm and its market capitalization.
2.3.3 Management Efficiency
Management efficiency is the capacity of the top managerial staff and management to distinguish, measure and control the dangers of an organization's operations and assurance the protected and compelling operation in satisfaction of apropos laws and directions. The management efficiency of a firm is measured using financial ratios such as add up to resource development, credit development rate, and income development rate. The execution of management is likewise frequently appeared by subjective evaluation of management frameworks, authoritative teach, control frameworks, and nature of staff among different elements (Ongore & Kusa, 2013).
Furthermore, the capacity of the management to use its assets adequately, boost wage, limit operation expenses can be measured by monetary proportions. Operating profit to income ratio is particularly useful in measuring management quality. The higher the ratio the more efficiently the management is in relation to operations and generating income (Ongore & Kusa, 2013). Firms with efficient management are expected to perform better and therefore are more profitable. Potential stock buyers always look at the profit column of firms to determine its stability. They then make decisions on which stock to go for. The higher the profits of a given firm, the more attractive the share is at the securities exchange market thus giving it a higher price
(Mehun, 2012).
Oluwatoyin and Gbadebo (2013) established that when a company has a good management, it records a high turnover which translates to high profits. If such a
16 company then declares a high bonus and dividends for its shareholders, its share price index also increases. This in turn attracts investors who are after a higher return on their investment. If this state of affairs is maintained, the value of the market capitalization of the firm also goes high. As a result, more cash would be available for expansion thereby leading to increased turnover in an ever-flowing cycle.
2.4 Empirical Studies
Baskin (2009) reviewed the relationship between share price and dividend yield of firms, trading at the New York stock exchange in the years 2001-2009. He used a descriptive research design. He sampled 100 companies. The results were that there was significant relationship between the share price change and yield of quoted companies. His study was however based in the United States which is a developed country with an advanced economy.
Husseiney et al, (2011) studied the correlation between share price movement and dividend policy in the United Kingdom. The study used 103 quoted companies in the period between 1998 and 2007. They used a mixed methods research design. The results found an inverse but significant relationship between stock price movement and dividend payout ratio. In effect dividend payout ratio remained the most important criteria in share movement. He used least squares regression analysis to determine the relationship between market value, payout ratio and dividend yield among other explanatory variables. The study discovered a negative correlation between share price and the dividend policy. Perhaps the use of the mixed approaches in the research brought about the negative results.
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Egbeonu & Edori, (2016) studied the effect of dividend policy on the value of the firm. They used 12 listed companies in the Nigeria stock exchange from the various sectors of the economy. The study used the descriptive research design. Data was analysed using He used unit root test, Johansson co-integration test and ordinary least squares. The results indicated that dividend per share has an inverse relationship with the share price in the stock market. The findings may have been as a result of the sample size being too small given that the exchange has over 100 listed firms.
Khani & Dehghani (2011) evaluated the effect of financial life cycle of dividend policy on market capitalization of listed firms in Tehran Stock Exchange. They sampled 55 dividend paying listed companies between 2001 and 2010. Regression analysis was applied. The findings indicated that Dividend Yield was positively related to market cap while Retention Ratio was negatively related to market cap in both cases. This also further indicated that investors wanted dividends as they signaled the future prospects of the company.
Mokaya, Nyangara & James (2013) deliberated on the effect of dividend policy on the firm value of Kenya commercial banks. The study adopted a multiple regression analysis and correlation and a test of significance of 95% over a 5 year period using
11comercial banks. Their findings were that dividend payout ratio has a significant effect on the value of the firm. These studies are however older than five years. There is need for the current study in order to update the existing literature.
Mbuvi (2010) studied the effect of dividend policy on creating value for shareholders in listed companies at the NSE. The study involved 59 listed companies with fully paid up capital. The study adopted an observation research design. The study discovered that the omission or decrease of dividend payout go together with a
18 reduced share price. This study focused on value creation in firms while the current study will focus on market capitalization of firms.
Munyua (2012) studied the effects of dividend policy on stock prices for firms listed in the Nairobi stock exchange. He surveyed all the 61 listed companies in the period between 2004 and 2013. He adopted the descriptive research design. He applied ordinary least square correlation and regression analysis over a 95% confidence level using Anova and F –test. He used share price as a function of dividends, profitability and leverage. He found that here existed a strong positive correlation between dividend per share and share price. The current study will however use dividend announcement, dividend payout, tax incentives and free cash flows as the study variables.
Odiero (2013) studied the effect of dividend policy on stock prices of firms listed at the Nairobi Securities Exchange. He used descriptive statistics to survey 59 listed firms in the period 2005-2009. The study used regression analysis to assess the strength of relationship among variables. He established a significant positive relationship between the dividend policy and stock prices.
Waithaka, Ngugi, Aiyabei & Itunga (2012) examined the impact of dividend policy on share prices of companies in Nairobi Securities Exchange. The study surveyed the
59 listed firms. Descriptive statistics was used while regression and correlation were used for analysis. The study established that higher pre-tax risk adjusted returns yielded higher dividend stocks. This was further attributed to the firms having to compensate investors for the disadvantage of taxed returns. The study further concluded that firms which paid higher dividends also enjoyed growing market capitalization.
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2.5 Summary of the Literature Review
Baskin (2009) reviewed the relationship between share price and dividend yield of firms, trading at the New York stock exchange. The results were that there is significant relationship between the share price change and yield of quoted companies. Husseiney & Mgabame (2011) studied the correlation between share price movement and dividend policy in the United Kingdom, the study found an inverse but significant relationship between stock price movement and dividend payout ratio.
Again this was a study based on a first world economy. Locally, Omollo (2011) studied the effect of dividend policy on firm value on Kenya commercial banks. His findings were that dividend payout ratio has a significance effect on the value (market capitalization) of the firm.
Munyua (2012) studied the effects of dividend policy on stock prices for firms listed in the Nairobi stock exchange he sampled 61 listed companies in the period between
2004 and 2013. He discovered that the expectation that a company will announce dividends in the near future, creates a demand for such stocks hence a rise in its price.
He used share price as a function of dividends, profitability and leverage. He found that here existed a strong positive correlation between dividend per share and share price.
Dividend irrelevance theory has indicated that dividend policy is irrelevant if the assumption of perfect certainty is dropped and uncertainty is applied, though according to other authors dividends are considered relevant under conditions of uncertainty. Then, the bird in hand theory explains the importance of dividend policy to the value of a firm. Again the signaling theory argues that companies would choose to pay out dividends in an endeavor to send positive signals to external investors and
20 shareholders. Finally the tax preference theory avers that due to time factor of money investors prefer to defer tax than to pay it now, as it has a higher effective cost of capital when paid now than in the future, long term gains also allow for tax deferment when selling stock as they can pay when they sell it, hence dividend is not preferred.
The above theories indicate an effort to explain the importance of a dividend policy to a firm. They have provide a guide for this study. Also, the studies cited investigated the effects of dividend policy on market capitalization. However, none of these studies has used dividend policy, firm size and management efficiency as the study variables. This study therefore seeks to answer the question: what is the effect of dividends policy on market capitalization for firms listed at the Nairobi securities exchange?
2.6 Conceptual Framework
Independent Variables Dependent Variable
Dividend policy
• Payout ratio
Market Capitalization Firm Size • Total value of a firm’s assets • Total value of a
company's shares
Management Efficiency • Operating profit to income
ratio
Figure 2.1 Conceptual Framework
21
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
This chapter deals with the method of research adopted in the study, the research design, population, design, data collection, validity and reliability, data analysis, analytical model and test of significance, as discussed in the subsequent sub-headings.
3.2 Research Design
The study used a descriptive research design. This design was appropriate as it expresses the situation as it is (Kothari, 2004). It therefore assisted the researcher to describe how dividend policy was being implemented in firms trading at the Nairobi
Stock Exchange and how that policy was affecting the market capitalization of those firms.
3.3 Population
A population is an entire group of individuals (Mugenda & Mugenda, 2003). The target population of this study was all the 64 listed firms in the NSE as at 30th
December 2016. This study carried out a census of all the firms trading at The Nairobi
Stock Exchange since the population was small (Kothari, 2004).
3.4 Data Collection
Mugenda and Mugenda (2003) defines data collection as the systematic collection of data to assist in the research study using various techniques. Data should be quantifiable for ease of statistical manipulation. Data was collected from secondary sources which included reports by Nairobi Securities Exchange. Financial reports of the respective firms was also evaluated in order to get their stock prices and the
22 dividend payouts reported in each financial year in comparison to the share price in the period 2013 to 2017.
3.5 Data Analysis
The study involved both quantitative and qualitative data. It examined the collected data to make inferences, editing to eliminate restatements and for grouping. After data was checked for completeness, it was thematically coded. The refined quantitative data was analyzed using the statistical package for social sciences (version 22).
Descriptive statistics involving frequencies, percentages, means and standard deviations was also used to analyze the data. The regression analysis model was used to analyze the relationship between the study variables.
3.5.1 Analytical Model
The analytical model was modeled as follows:
Y = β0 + β1X1 + β2X2 + β3X3 +e
23
Where:
Operational Variable Proxy Measurement Source Definition
Market The value of a Log of (outstanding Barberis, Capitalization Y company that is traded shares x current (2003) on the stock market share price)
A firm’s approach to Dividend Payout
Dividend dividing its profits Ratio = Dividend per Baker X1 Policy among the Share/ Earnings per (2009)
shareholders Share
Log of the total value Goddard
Firm Size X2 Magnitude of a firm of the assets of a et al.
firm (2004)
Proportion of total Caparrelli Management resources that Profit /Revenue et al., Efficiency X3 contribute to (2014) productivity
3.5.2 Tests of Significance
The study used F test statistic in determining whether the model was significant or not significant at 95% degrees of freedom. This means that the study compared the p value calculated by the study with the alpha value of 0.05. If p value was less than
0.05, then the study was declared significant while the vice versa is true. The F statistic on the other hand was used to determine whether to reject the null or fail to reject the same.
24
CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND INTERPRETATION
4.1 Introduction
This study sought to examine the effect of dividend policy on market capitalization for firms listed at the Nairobi securities exchange. The study findings are presented in this chapter under the following sub-headings:
4.2 Response Rate
The NSE had 64 registered firms as at the year 2016. The study was conducted for a period of 5 years from which full information that was necessary for the study was obtained for 43 registered firms. The other firms were did not have complete information for all the variables in the period of five years. This represented a response rate of 67.2% which according to conclusions by Mugenda & Mugenda
(2003), a response rate of 50% was found to be good in conducting panel data analysis. A response rate of 60% and above was satisfactory while a response rate of
70% and above was excellent if used for inferential statistical analysis. Our study was therefore satisfactory as it had a response rate of 67.2%.
4.3 Data Validity
Data validity was undertaken by the study with the intention of understanding whether the data that was collected complied with the various assumptions that are made by multiple regression analysis, which was used to describe the relationship between the variables in this study.
The study undertook validity test to understand whether data conformed to normality assumptions of the data. This means that the data had to be from a normally
25 distributed population for each variable. Data is transformed if it does not show to be from a population with normal distribution until this assumption is met.
The data of each variable should not be directly related to the data for the other variable. This means that one variable should not be a subset of the other variable as this shows that the variables are collinear. Collinearity test was therefore undertaken on each variable to ensure that the variables are not subset of other variables in the model.
The regression model also assumes that there are no autocorrelations which give residual errors in the model. This study also undertook a test for autocorrelations accordingly.
4.3.1 Normality Test
Normality test was determined by use of Skewness and Kurtosis. Skewness shows whether data is leaning with a bias to the right or to the left. The left bias shows a negative skewness while a positive skewness shows a positive skewness. Kurtosis on the other hand shows the flatness or the sharpness of data distribution. Flat data shows that data has big standard deviation from the mean and the vice versa.
The standard practices regarding these tests is that a kurtosis and skewness value of within the range of +3 and -3 is appropriate with any other result showing data is not normal. In such cases the variable is transformed by either standardizing, looking for the natural log, reciprocal of data among others.
26
Table 4.1: Normality Test
Skewness Kurtosis
Statistic Std. Error Statistic Std. Error
Y = Market Cap 2.091 .166 6.922 .330
X1 = Div Policy .522 .166 .526 .330
X2 = Size -.975 .166 1.949 .330
Z3= Mgt Efficiency 2.7088 .166 9.202 .330
Valid N (listwise)
Source: Author, 2018
Market capitalization and Management efficiency are not normal since they have a kurtosis of 6.922 and 9.202, therefore standardized values of these variables are used in the regression analysis.
4.3.2 Collinearity Test
Table 4.2: Collinearity Test
Model Collinearity Statistics
Tolerance VIF
(Constant)
X1 = Div Policy .980 1.020 1
X2 = Size .963 1.039
Zscore: Z3= Mgt Efficiency .980 1.020
Source: Author, 2018
Collinearity test is undertaken by VIF (Variable Inflation factor). Variables are said to be collinear if VIF value is greater than 10, while values of 10 and below shows that 27 data is not collinear. All variables have VIF factors of below 10 and therefore shows absence of collinearity in the variables
4.3.3 Test for Autocorrelations
Autocorrelations in the model are tested by the use of Durbin Watson. A score of 4 and above shows presence of autocorrelations in the model and therefore presence of residual errors. The Durbin Watson score in this study is 2.368 as shown in the model summary. The value is therefore below 4 which shows absence of autocorrelations.
Table 4.3: Descriptive Statistics Table
N Minimum Maximum Mean Std. Deviation
Statistic Statistic Statistic Statistic Statistic
Y = Market Cap 215 3.625 6.8 4.42 .490
X1 = Div Policy 215 -4.56 3.06 -.996 1.439
X2 = Size 215 14.71 27.58 22.87 2.183
Z3= Mgt Efficiency 215 -.0576 2.97 .432 .439
Valid N (listwise) 215
Source: Author, 2018
It describes the data in form of the minimum value, maximum, mean and standard deviation. It explains the variable by giving the mean of each variable and hints on the possible outliers which are explained in form of maximum and minimum as shown in table 4.3 above.
Market Capitalization had a mean value of 4.42 with a small standard deviation of .49 and outliers at maximum of 6.8 and minimum of 3.625. The Dividend policy variable
28 had a mean of -.996 and slightly high standard deviation of 1.439 maximum value at
3.06 and minimum value of -4.56.
Size had a mean of 22.87 with a standard deviation of 2.183 and outliers at 27.58 and at 14.71. Market efficiency on the other hand had a mean of .432 and a standard deviation of .439.
4.4 Correlation Analysis
Pearson’s correlation is used to describe relationships between variables. It explains how one variable usually the independent variable is correlated to the dependent variable. The highest correlation is usually 1 that shows an exact copy of the variable and -1 which shows the exact opposite of the variable. A correlation of zero, however shows that there is no correlation between the variables. Correlations that are near zero shows that they are weak correlations while those that are near 1 or -1 shows that they are strong positively correlated or negatively strong correlated respectively.
Table 4.4: Correlation Analysis
Y = Market Cap X1 = Div Policy X2 = Size Z3= Mgt Efficiency
Y = Market Cap 1
X1 = Div Policy -0.119249342 1
X2 = Size -0.981420514 0.138116792 1
Z3= Mgt
Efficiency -0.141550016 0.040435297 0.139732358 1
Source: User, 2018
All the variables are negatively correlated to market capitalization though they are weak except size which is strong negative correlation. The negative correlation shows
29 that increasing Dividend policy then market capitalization decreases which means that when the pay-out ratio to total earnings is increased, then there is less cash that is left in the firm to grow the operations of the company in the form of retained earnings.
The market investors therefore interprets such a move as detrimental to future value of the company which reduces their market capitalization.
4.5: Regression Model Summary
Table 4.5: Regression Model Summary
Model R R Square Adjusted R Std. Error of the Durbin-Watson
Square Estimate
1 .982a .963 .963 .19245504 2.368
The coefficient of determination (R squared) is .963 which shows a strong model that can predict the dependent variable to 96.3% of the changes in dependent variable.
Only 3.7% of the changes in dependent variable are explained by other factors outside the model. The Durbin Watson score shows that there are no presence of autocorrelations in the model.
4.6 F Test Statistic
F test statistic uses The ANOVA table in determining the significance of the model and on determining whether to reject or fail to reject the null hypothesis.
30
Table 4.6: ANOVA
Model Sum of Squares Df Mean Square F Sig.
Regression 206.185 3 68.728 1855.568 .000b
1 Residual 7.815 211 .037
Total 214.000 214
Source: Author, 2018
There is a significant effect since p value is .000 and alpha value is 0.05 since the study was conducted at 95% degrees of freedom. The p value is therefore less than alpha value that leads us to conclude that the model is significant.
The F calculated value is 1855.568 which is far beyond the value for the F critical at an alpha value of 0.05 and 3 and 211 degrees of freedom. This leads us to reject the null and conclude that there is an effect of dividend policy on market capitalization.
4.7 Regression Coefficients
Table 4.7: Regression Coefficients Table
Model Unstandardized Coefficients Standardized T sig
Coefficients
B Std. Error Beta
(Constant) 10.310 .143 72.310 .000
X1 = Div Policy .012 .009 .017 1.259 .210 1
X2 = Size -.450 .006 -.983 -73.324 .000
Zscore: Z3= Mgt Efficiency -.005 .013 -.005 -.366 .715
Source: Author, 2018
31
The regression analytical model Y = β0 + β1X1 + β2X2 + β3X3 +e
Therefore becomes a predicting model denoted as
Y = 10.31 + 0.012 X1 – 0.45 X2 - 0.005 X3 + 0.143
From the equation, taking the three factors (dividend policy, firm size and management efficiency) constant at zero, the market capitalization of the listed firms would be 10.31. Standard error 0.143
4.8 Study Findings and Discussions
The main result findings of the study was that there was negatively but statistically significant effect of dividend policy on market capitalization for the firms listed at
NSE. The correlation coefficient was negative though it was weakly correlated. This means that increasing the dividend pay-out ratio decreased the market capitalization, which suggests that investors were discouraged from participating in buying and selling of the shares in which case the management of the company did not consider it worthwhile to increase retained earnings that would be used to improve the future market value of the firm.
It was also evident that the investors preferred lower cash pay-out ratio, as it would increase the future market value of the firm. The investors were therefore keen on investing on firms with potential of increase in future wealth, than the current wealth that is denoted by current dividends that have been issued by the firms.
Size of the firm had a strong negative correlation with market capitalization which showed that the bigger the size of the firms, the lesser the shares traded for the company. This could be explained by the poor management efficiency for firms listed
32 at NSE. Large firms have so much resources at their disposal. They however do not optimally use these assets in generating revenue which shows poor efficiency in the use of company assets in generating profits.
The findings of the study was in tandem to some of the empirical studies that were undertaken in previous studies while others contradicted findings of this study.
Husseinery et. al. (2011) looked at the share price’s correlation with dividend policy in UK, the study findings indicated significant but inverse relationship between the variables. This is similar results to our study for this study conducted in United
Kingdom. Similarly Egbeonu & Edon (2016) studied effect of dividend policy on the value of the firm in Nigeria. They found that DPS had inverse relationship with share price in the stock market.
On the contrary, Oluwatoyin & Gbadebo (2013) found that an improved management efficiency led to an improved profitability and high return. In our study we however found a negative correlation between management efficiency and market capitalization. Khani & Deghani (2011) also found positive relationship between dividend yield and capital market capitalization, while Baskin (2009) had also obtained positive effect of share price on dividend yield.
33
CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Introduction
Discussed in this chapter are the summary, conclusion and recommendations of the study under the following sub- headings.
5.2 Summary of Findings
The study found negative correlation between dividend policy and Market capitalization with a correlation of -0.12 while size had a strong negative correlation with a value of -0.98 and a negative correlation between management efficiency and market capitalization.
The coefficient of determination for the model was at 96.3% which showed a model that greatly predicted the dependent variable as only 3.7% of the changes in the variable were predicted by other factors outside the model.
The model was also found to be statistically significant with the alpha value was bigger than the p value. It rejected the null hypothesis at 95% degrees of freedom which means that there was effect of dividend policy on market capitalization.
5.3 Conclusion
The study makes various conclusions based on the findings of the study. In the first instance, the study concluded that there was insignificant inverse effect of dividend policy on market capitalization for firms listed at NSE. This implies that increasing the dividend policy by increase the dividend pay-out ratio, then the market capitalization for the firms decreases significantly.
34
The study also concluded that the size of a firm was also negatively correlated with market capitalization. This implied that the bigger a company is, then the smaller the market capitalization for the firm. It implies that big companies performed poorly in market capitalization than smaller firms.
The coefficient of determination (R squared) is .963 which shows a strong model that can predict the dependent variable to 96.3% of the changes in dependent variable.
Only 3.7% of the changes in dependent variable are explained by other factors outside the model.
5.4 Recommendations
From the findings, the study revealed that the dividend policy adopted by the listed firms negatively affected their market capitalization. The study therefore recommends that the management of the listed firms should ensure that they minimize the dividends pay-out ratio as it would lead to increase in market capitalization for the company that would eventually lead to increase in the value of the firm.
Since the study has found a relationship between management efficiency and market capitalization of firms, individual firms should then strive to ensure progressive efficiency in their internal management in order to improve their efficiency. Improved management efficiency would mean that they would obtain results that would lead to favorable value of the firm.
The study discovered that firm size had an impact on the market capitalization of firms, therefore firms should continuously put in place measures that help them grow their asset bases that in turn expand their market capitalization.
35
5.5 Limitations of the Study
There are various limitations of this study, the study in the first instance used only three independent variables that were to influence the dependent variable. Perhaps the use of more variables would provide a perfect model in which case it predicts the independent variable by 100%.
Data was entirely collected by the use of secondary data collection method. This limits the value of the output as there are dimensions of data collected through secondary data that couldn’t be captured by the use of this method. The use of panel data limits the study to the data indicated without providing required authenticity of the correctness of the data used. The study however applied much care on capturing audited financial data.
The study period was only for five years for the period 2002-2016. This is quite a short period of time in which case there may not be major variations on the macro economic environment and other major changes in organizations such as changes in management and major changes in strategic goals of the organization among others.
The study used a regression analysis model by the use of SPSS version 20. This limits the total output that is given by the software which means that the interpretation of findings is also curtailed by the methods employed to undertake analysis.
5.6 Suggested areas for further research
Since this study explored the effect of dividend policy on market capitalization in firms listed in the Nairobi Securities Exchange, the study recommends that; similar study should be done in other securities exchange in Africa and beyond for comparison purposes and to allow for generalization of findings.
36
The study also recommends that a study on the relationship between firm profitability and the firm’s dividend policy should be done and how this affects the future market value of the firm.
The study further recommends a study be undertaken that covers a period of more than 5 years perhaps a period of 15 years that would show the changes in the variables for periods of different administrations, periods of different macroeconomic variables and different constitution order if possible.
The study should also be replicated and different Scientific Statistical softwares such as e views, strata be employed to obtain the output of the study.
37
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APPENDIX I: Firms Listed in the NSE
Eaagads Ltd Express Ltd Kapchorua Tea Company Ltd Sameer Africa Plc Kakuzi Kenya Airways Limuru Tea Company Ltd Nation Media Group Rea Vipingo Plantations Ltd Standard Group Ltd Sasini Ltd TPS Eastern Africa (Serena) Ltd Williamson Tea Kenya Ltd Scangroup Ltd Car and General (K) Ltd Uchumi Supermarket Ltd Barclays Bank Ltd Longhorn Publishers Ltd Stanbic Holdings Plc Atlas Development and Support Services I&M Holdings Ltd Deacons (East Africa) Plc DTB Kenya Ltd Athi River Mining HF Group Ltd Bamburi Cement Ltd KCB Group Ltd Crown Paints Kenya PLC National Bank of Kenya Ltd E.A. Cables Ltd NIC Group Plc E.A. Portland Cement Ltd Standard Chartered Bank Ltd KenolKobil Ltd Equity Group Holdings Total Kenya Ltd Co-operative Bank of Kenya Ltd KenGen Ltd Kenya Re-Insurance Corporation Ltd Kenya Power & Lighting Co Ltd Liberty Kenya Holdings Ltd Jubilee Holdings Ltd Britam Holdings Ltd Sanlam Kenya Plc CIC Insurance Group Ltd British American Tobacco Kenya Ltd Centum Investment Company Ltd Carbacid Investments Ltd Trans-Century Ltd East African Breweries Ltd B.O.C Kenya Ltd Unga Group Ltd Safaricom Plc Eveready East Africa Ltd Kenya Orchards Ltd
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Source: Nairobi Securities Exchange
Appendix II: Firm Revenue (Logs)
2017 2016 2015 2014 2013 9.11 9.08 9.03 9.08 9.13 Kapchorua Kakuzi 9.45 9.42 9.39 9.23 9.14
Sasini 9.62 9.55 9.45 9.44 9.45
Williamson Tea 9.53 9.53 9.41 9.55 9.54
Barclays Bank 10.48 10.50 10.47 10.45 10.45
Stanbic 10.07 10.08 10.11 10.11 10.08
DTB 10.41 10.41 10.31 10.23 10.16
KCB Group 10.85 10.84 10.77 10.74 10.68
National Bank 9.96 10.03 9.96 10.00 9.93
NIC Bank 10.32 10.28 10.23 10.14 10.07
Stanchart 10.43 10.44 10.39 10.41 10.37
Equity Bank 9.93 10.06 10.93 10.61 10.60
Coop 10.62 10.63 10.56 10.51 10.45
Kenya Re 9.50 9.49 9.48 9.41 9.36
Britam 10.44 10.35 10.30 10.32 10.18
CIC 10.00 10.12 9.96 10.16 10.13
Centum Investment Ltd 9.68 9.65 9.71 9.66 9.67
Trans-Century Ltd 9.78 9.70 9.79 9.81 9.79
B.O.C Kenya Ltd 8.99 9.03 9.07 9.11 9.09
Safaricom Plc 11.33 11.29 11.21 11.16 11.09
Kenya Orchards Ltd 9.62 9.59 9.42 9.36 9.32
Express Kenya Ltd 9.50 9.49 9.48 9.41 9.36
Sameer Africa Plc 9.42 9.46 9.53 9.58 9.61
Kenya Airways 11.03 11.07 11.04 10.96 10.93
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Nation Media Group 10.03 10.05 10.09 10.13 10.13
Standard Group Ltd 9.78 9.70 9.79 9.81 9.79
TPS Eastern Africa (Serena) Ltd 9.81 9.81 9.80 9.77 9.76 Scangroup Ltd 9.72 9.73 9.69 9.68 9.64 Uchumi Supermarket Ltd 12.41 12.81 13.11 13.16 13.21 Longhorn Publishers Ltd 9.24 9.15 9.50 9.15 9.27 Atlas Development and Services 9.68 9.65 9.71 9.66 9.67 Deacons (East Africa) Plc 9.23 9.10 9.35 9.39 9.30 Athi River Mining 9.24 9.15 9.50 9.15 9.27 Bamburi Cement Ltd 10.00 10.04 9.98 9.93 9.86 Crown Paints Kenya PLC 9.68 9.63 9.78 9.61 9.51 E.A. Cables Ltd 9.62 9.59 9.42 9.36 9.32 E.A. Portland Cement Ltd 9.84 9.95 9.93 9.96 9.96 KenolKobil Ltd 11.16 10.93 10.88 10.87 10.86 Total Kenya Ltd 11.14 11.04 11.14 11.23 11.19 KenGen Ltd 10.55 10.59 9.48 10.26 10.23 Kenya Power & Lighting Co Ltd 11.08 11.03 11.03 11.01 10.99 Jubilee Holdings Ltd 9.65 9.44 9.55 9.45 9.44 Sanlam Kenya Plc 9.03 9.53 9.36 9.07 9.19 BAT Kenya Ltd 9.93 9.68 9.46 9.49 9.08 Carbacid Investments Ltd 9.62 9.59 9.56 9.55 9.54 East African Breweries Ltd 10.85 10.81 10.81 10.78 10.76 Unga Group Ltd 9.46 9.43 9.39 9.36 9.39 Eveready East Africa Ltd 8.47 8.12 8.20 8.30 8.37 Eaagads Ltd 9.78 9.70 9.79 9.81 9.79 Rea Vipingo Plantations Ltd 9.50 9.47 9.33 9.33 9.32 Car and General (K) Ltd 9.39 9.34 9.27 9.20 9.12 I&M Holdings Ltd 8.65 8.30 8.70 9.51 8.50 HF Group Ltd 9.64 9.70 9.80 9.84 9.86 Limuru Tea 9.53 9.16 9.11 9.27 10.15 Standard Chartered 10.43 10.44 10.39 10.41 10.37
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Source: Nairobi Securities Exchange
Appendix III: Firm Profits (Logs)
Firm 2017 2016 2015 2014 2013 Kapchorua - 8.18 - 8.26 8.41 Kakuzi 8.93 8.88 8.82 8.37 8.38 Sasini 8.72 8.88 9.27 6.52 8.63 Williamson Tea 8.42 8.68 8.36 8.87 8.93 Barclays Bank 10.02 10.04 10.08 10.09 10.05 Stanbic 9.73 9.78 9.87 9.89 9.86 DTB 10.00 10.04 9.98 9.93 9.86 KCB Group 10.48 10.51 10.42 10.38 10.30 National Bank 9.20 9.09 - 9.00 8.77 NIC Bank 9.78 9.70 9.79 9.81 9.79 StanChart 10.00 10.12 9.96 10.16 10.13 Equity Bank 10.12 10.06 9.89 10.34 10.29 Coop Bank 10.21 10.25 10.19 10.04 10.02 Kenya Re 9.68 9.63 10.21 10.15 10.12 Britam 8.94 9.63 - 9.51 9.49 CIC 9.55 9.50 9.48 9.56 9.57 Centum Investment Ltd 9.65 9.70 9.64 9.62 9.68 Trans-Century Ltd 9.13 9.15 9.18 9.28 9.20 B.O.C Kenya Ltd 8.47 8.12 8.20 8.30 8.37 Safaricom Plc 10.85 7.75 7.66 7.54 7.41 Kenya Orchards Ltd 9.19 9.44 9.20 9.20 9.15 Express Kenya Ltd 9.15 9.19 9.33 9.34 9.29 Sameer Africa Plc 7.11 - - - 8.60 Kenya Airways - - - - - Nation Media Group 9.29 9.39 9.45 9.56 9.55
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Standard Group Ltd 9.22 9.35 9.46 9.18 9.15 TPS Eastern Africa (Serena) Ltd 9.19 9.22 9.11 9.13 9.16 Scangroup Ltd 9.68 9.65 9.71 9.66 9.67 Uchumi Supermarket Ltd - - 9.41 9.53 9.56 Longhorn Publishers Ltd 8.65 8.30 8.70 9.51 8.50 Atlas Development and Services 9.23 9.10 9.35 9.39 9.30 Deacons (East Africa) Plc - - - - - Athi River Mining 10.08 10.23 10.20 10.14 10.54 Bamburi Cement Ltd 9.53 9.16 9.11 9.27 9.16 Crown Paints Kenya PLC 9.24 9.15 9.50 9.15 9.27 E.A. Cables Ltd 9.03 9.53 9.36 9.07 9.19 E.A. Portland Cement Ltd - 9.57 9.87 - 9.15 KenolKobil Ltd 9.49 9.30 9.25 9.15 9.29 Total Kenya Ltd 9.62 9.59 9.42 9.36 9.32 KenGen Ltd 10.06 10.05 9.94 9.62 9.60 Kenya Power & Lighting Co Ltd 10.04 10.08 10.05 10.00 9.96 Jubilee Holdings Ltd 9.71 9.66 9.62 9.60 9.50 Sanlam Kenya Plc 8.40 8.50 7.71 9.06 9.18 BAT Kenya Ltd 10.72 10.70 10.66 10.67 10.67 Carbacid Investments Ltd 9.19 9.30 9.05 9.20 9.19 East African Breweries Ltd 10.12 10.13 10.15 10.02 9.92 Unga Group Ltd 9.08 9.20 9.33 9.19 9.34 Eveready East Africa Ltd 8.50 8.52 8.12 8.06 8.19 Eaagads Ltd 9.50 9.48 9.20 9.34 9.17 Rea Vipingo Plantations Ltd 9.14 9.19 9.20 9.23 9.24 Car and General (K) Ltd 9.99 9.98 10.00 9.98 9.99 I&M Holdings Ltd 9.18 9.22 9.33 9.19 9.23 HF Group Ltd 9.07 9.08 9.51 9.22 9.28 Limuru Tea 9.15 9.21 9.12 9.42 9.40 Standard Chartered 10.00 10.12 9.96 10.16 10.13
46
Source: Nairobi Securities Exchange
Appendix IV: Firm Size/Assets (Logs)
Firm 2017 2016 2015 2014 2013 Kapchorua 9.31 9.33 9.30 9.29 9.32 Kakuzi 9.77 9.71 9.66 9.59 9.57 Sasini 10.10 10.10 10.08 10.00 9.59 Williamson Tea 9.92 9.95 9.93 9.93 9.90 Barclays Bank 11.33 11.41 11.38 11.35 11.32 Stanbic 11.40 11.33 11.32 11.26 11.26 DTB 11.56 11.52 11.43 11.33 11.22 KCB Group 11.81 11.77 11.75 10.69 11.59 National Bank 11.04 11.05 11.08 11.09 10.97 NIC Bank 11.29 11.23 11.22 11.16 11.08 StanChart 11.46 11.40 11.37 11.35 11.34 Equity Bank 11.72 11.68 11.63 11.54 11.44 Coop Bank 11.36 11.46 11.53 11.55 11.59 Kenya Re 10.63 10.59 10.56 10.51 10.44 Britam 11.00 10.92 10.89 10.86 10.67 CIC 10.49 10.41 10.36 10.35 10.15 Centum Investment Ltd 9.63 9.64 9.63 9.60 9.59 Trans-Century Ltd 9.72 9.73 9.69 9.68 9.64 B.O.C Kenya Ltd 8.88 8.85 8.85 8.80 8.83 Safaricom Plc 11.21 11.20 11.20 11.13 11.11 Kenya Orchards Ltd 7.82 7.79 7.82 7.79 7.83 Express Kenya Ltd 7.80 7.81 7.80 7.79 7.77 Sameer Africa Plc 9.47 9.52 9.57 9.59 9.56 Kenya Airways 11.16 11.19 11.19 11.17 11.09 Nation Media Group 9.96 10.02 10.03 10.00 9.99 Standard Group Ltd 10.03 10.00 10.01 10.01 10.01 TPS Eastern Africa (Serena) Ltd 10.09 10.34 10.20 9.99 9.66 Scangroup Ltd 10.74 10.66 10.61 10.60 10.54
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Uchumi Supermarket Ltd 9.64 9.70 9.80 9.84 9.86 Longhorn Publishers Ltd 9.35 9.18 9.16 9.32 9.42 Atlas Development and Services 9.93 9.68 9.46 9.49 9.08 Deacons (East Africa) Plc 9.64 9.72 9.80 9.90 9.83 Athi River Mining 10.06 10.41 10.41 10.35 10.12 Bamburi Cement Ltd 10.26 10.19 10.16 10.11 9.86 Crown Paints Kenya PLC 9.92 9.68 9.62 9.94 9.67 E.A. Cables Ltd 9.42 9.40 9.36 9.17 9.35 E.A. Portland Cement Ltd 10.44 10.44 10.36 10.20 10.21 KenolKobil Ltd 10.45 10.44 10.44 10.37 10.33 Total Kenya Ltd 10.58 10.56 10.53 10.51 10.60 KenGen Ltd 11.58 11.56 11.53 11.40 11.28 Kenya Power & Lighting Co Ltd 11.53 11.47 11.44 11.41 11.37 Jubilee Holdings Ltd 11.02 10.96 10.92 10.87 10.79 Sanlam Kenya Plc 10.47 10.45 10.43 10.39 10.33 BAT Kenya Ltd 10.35 10.28 10.15 10.12 10.08 Carbacid Investments Ltd 9.39 9.34 9.27 9.20 9.12 East African Breweries Ltd 10.82 10.82 10.80 10.80 10.79 Unga Group Ltd 9.62 9.59 9.56 9.55 9.54 Eveready East Africa Ltd 9.71 9.65 9.66 9.63 9.55 Eaagads Ltd 9.50 9.47 9.33 9.33 9.32 Rea Vipingo Plantations Ltd 9.05 9.47 9.33 9.16 9.32 Car and General (K) Ltd 9.66 9.64 9.62 9.65 9.64 I&M Holdings Ltd 9.66 9.64 9.63 9.61 9.60 HF Group Ltd 9.50 9.41 9.13 9.38 9.36 Limuru Tea 9.46 9.43 9.39 9.36 9.39 Liberty 11.46 11.40 11.37 11.35 11.34
Source: Nairobi Securities Exchange
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