Effect of board diversity and chief executive officer power on dividend policy in listed companies in Nairobi securities exchange, Kenya.

Abstract

Company’s manager’s encounters challenges originating from insider administrator’s incapability to productively accord stewardship. The concern’s proprietors hence, have to develop methods that assure that their interest are shielded. In contemporary business’s proprietors embrace instruments like diversity of the board to ease against executive’s inability from acting in their stake. The aim of the study assessed the effect of diversity of the supreme entities governance organ and chief executive officer power on policy on dividends among corporations enlisted in Nairobi Securities Exchange. In the prior period, majority of companies in emerging nations suffered volatile dividend payment, hence the necessity to ascertain if diversity of the board could address the prevailing dividend payment condition. This research examined how diversity of the board in form of age, foreign diversity, professional expertise and gender influence dividend policy in listed companies on the NSE. The investigation was steered by resource dependency, upper echelon, agency, power circulation and signaling theories. The study utilized explanatory research design. Secondary data from yearly reports of companies was gathered by means of document analysis schedule. Analysis of data was performed making use of descriptive statistics like the standard deviation, median and mean and fixed effect multiple regression manipulations were performed to assess impact amid diversity of the board and policy on dividends in organizations yearly reports. This research helped in outlining the effects of diversity of boards on policy on dividends in evolving nations at the same time evaluating if diversity of the board could perceived a solution to a puzzle on policy on dividends in enterprises. This research also contributed new knowledge on link amongst board members diversity and dividend policy as moderated by chief executive officer power. The regression results showed that foreign diversity (β= 0.396, p = 0.126), professional expertise (β = 0.226, p = 0.490), age (β = 0.005, p = 0.634) and gender diversities (β = -0.031, p = 0.724) did not exhibit a strong direct relationship with dividend policy. Although foreign diversity and diversity of gender had effect on dividend policy of enterprises. The moderation effect reveal that chief executive officer power effectively moderated the association between foreign diversity (β =292.03, p = 0.099) and gender diversity (β = 128.8, p = .07) and dividend policy of firms. CEO power did not significantly moderate the relationship between professional expertise (β = -0.135.31, p = 0.515) and age diversity (β = 11.231, p = 0.131) and dividend policy. The outputs too indicate that diversity of gender was the greatest significant element which influenced decisions on dividend policy both before and after moderation among Kenyan firms. The study makes the following recommendations; developers of policies to develop guidelines that improve board diversity among corporations because board diversity presents immense gains to corporation’s investors through reduction of agency hitches of free cash flows therefore improve disbursements to investors and minimize misallocation risks of surplus funds by corporate leaders, additional research could be performed on link among board diversity and dividend policy amongst SME’s, privately owned corporations both unlisted and listed enterprises utilizing comparable variables and a lengthier time frame for a similar research to establish if optimum outcomes could be attained. The study enriches the body of knowledge on board diversity, chief executive officer power and policy on dividend frameworks by providing empirical evidence on their relationships, contributes gainfully to the trade by examining whether board diversity complies with existing policy framework on selection of members of the board therefore verdicts gives comprehensions on current practices in Kenya and further, presents the business case for board diversity by indicating which diversity variables are most important to the firms shareholders.