Ownership structure, growth opportunities and dividend Payout Policy Among Firms Listed In The East Africa Community

Abstract

Dividend payouts are the major source of income for shareholders. Consequently, academics, financial analysts and policy makers have carried out extensive research to establish the factors that influence a firm's dividend payout policy. Though studies have demonstrated that ownership structure affects dividend payout policy, existing empirical literature shows conflicting and inconclusive findings. From this background, this study sought to investigate whether growth opportunities moderate the relationship between ownership structure and dividend payout policy among firms listed in the East Africa Community’s stock and securities exchanges. Specifically, the study examined the effect of institutional ownership, managerial ownership, government ownership and foreign ownership on dividend payout policy. The study further assessed the moderating effect of growth opportunities on the relationship between; institutional ownership, managerial ownership, government ownership, foreign ownership and dividend payout policy. The study was grounded on the agency theory and the pecking order theory. The study adopted both the longitudinal and explanatory research design. The study targeted all the 122 listed firms in the East Africa Community partner states between 2011 and 2021. However, after applying an inclusion/exclusion criterion the final sample comprised of 57 firms. The data was secondary in nature and was extracted from the annual financial statements through content analysis. Data was analyzed through descriptive and inferential statistics. The study adopted the hierarchical regression models to test for moderation and the choice between fixed and random effect was based on the results of Hausman test. Based on the regression results, the study found that institutional ownership (β= -0.1250; ρ< 0.05), managerial ownership (β= -0.4469; ρ< 0.05), government ownership (β= 0.6926; ρ< 0.05) and foreign ownership (β= 0.2440; ρ< 0.05) had a significant effect of dividend payout policy with an R 2 of 23.33 percent. The study further found that growth opportunities moderated the relationship between institutional ownership (β= -0.0732; ρ< 0.05), managerial ownership (β= 0.1982; ρ< 0.05), government ownership (β= 0.1982; ρ< 0.05), foreign ownership (β= -0.2777; ρ< 0.05) and dividend payout policy with an R 2 of 30.15 percent. The study concluded that the various forms of ownership are key determinants of dividend payout policy among listed firms in the East Africa Community partner states and firms’ growth opportunities influence that relationship. The study's conclusions have implications for managers and regulators. First, managers need to understand the varying interests of shareholders when making decisions relating to financing growth opportunities and payment of dividends. Secondly, while developing corporate governance codes for listed firms, regulators should consider the role played by corporate owners as well as firm dynamics such as growth opportunities. The study recommends that future studies should explore the contextual factors that shape the relationship between ownership structure, growth opportunities, and dividend payout policy in the EAC such as legal and regulatory frameworks.