dc.description.abstract |
Dividend pay-out is widely studied in finance literature. Indeed, the decision on
dividend payment rests with a company’s board of directors and the power of the
Chief Executive Officer (CEO). Dividend pay-out differ from one firm to another
with wider variations seen in emerging economies where there are weaker rules and
regulations. This study assessed the role of the board of directors and the CEOs in
determining dividend pay-out. The general objective was to investigate the
relationship between board structure and dividend pay-out and the moderating role of
CEO entrenchment. The specific objectives were to determine the effect of CEO
duality, board size, board tenure, non executive director on dividend pay-out. Further
the study sought to establish the interaction effect of CEO entrenchment on dividend
payout. The study was grounded by the agency theory, stewardship theory, upper
echelons theory and the theory associated with dividend payout namely signaling
theory to determine the relevance of dividend payout in East African countries. The
study used exploratory research design. The study used panel data for a period of nine
years from 2005 to 2013. Data was collected from all firms listed in the stock markets
of Kenya, Uganda, Tanzania and Rwanda. The study used random effect regression
model to analyze the data. The findings showed that board size (β= 2.780, p=0.000)
and CEO duality (β=36.219, p=0.001) has positive and significant effect on dividend
pay-out, non-executive director and board tenure has a negative and significant effect
on dividend payout (β= -46.120, p=0.000) and (β= -0.786, p=0.009). Furthermore,
CEO entrenchment was found to moderate the relationship between board structure
and dividend payout, such that board tenure was found to have enhancing and
significant interaction on dividend payout(β=0.105, p=0.000) and CEO duality
(β=4.873, p=0.000). Furthermore, CEO entrenchment does not moderate the
relationship between board size, non executive director and dividend payout. From
the findings of this study, effective monitoring of business is more crucial to reduce
CEO entrenchment effect and agency cost. This will provide good signaling effect to
the market price following the increases of earnings and thereafter dividend payout. It
was also noted that as long as small board size are effective in decision making
toward dividend payout, CEO entrenchment stewards the small board through
increases of allowances or rewards to reduce or evade the dividend payout. This study
recommends that younger stock market like Rwanda, Uganda and Tanzania to
incorporate more local firms while strengthening dividend policy. It it therefore
suggest to reinforce policies of the countries on selecting board members whereas the
diversity and experimentation of non executive directors should behold. This study
contributes to theory by linking upper echelons theory, Stewardship theory and
signaling theory in relation to CEO entrenchment. The regulators would find this
study useful in terms of developing a balance between the board of directors and set
clear regulation on the interaction between non executive director and the use of
board committees toward safeguard shareholder interest among other dividend
payout. |
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