Dividend Decisions and Economic Value-Added of Firms in Kenya

Abstract

Creating corporate value is one of the organization's primary priorities. As the value of the company increases, shareholders will receive additional benefits. The result of empirically based research is a substantial body of literature on dividend policy. There are two major schools of thought in the research: one argues that a company's dividend policy influences its value, while the other maintains that it has no effect on it. After many years of research, no agreement has been reached, and scholars cannot even agree on the same empirical evidence. Over the years, a variety of theories about the potential influence of dividend choices on a company's total wealth and performance have been developed, with varying degrees of success. Numerous financial ideas and models were put forth, and the business sector later used them. It is still unclear, despite several studies, how dividend decisions impact the share price of the firm and the overall wealth of shareholders. The purpose of this study was to investigate the relationship between business valuation and dividend policy choices. Several studies indicate a statistically significant positive correlation between the dividend policy and return on equity. As a result, raising dividend payments will help the business succeed. A substantial body of evidence, however, suggests a conflict between firm profitability and dividend payout. As a result, when companies pay dividends, their retained earnings are impacted, which affects their expected internal profitability.