Dividend Signaling and Shareholder Monitoring Hypothesis: Empirical evidence from Nairobi Securities Exchange

Muriungi MA, Kinoti M, Okiro K. "Dividend Signaling and Shareholder Monitoring Hypothesis: Empirical evidence from Nairobi Securities Exchange." African Development Finance Journal. 2021;5(1):145-159.


Most corporate governance studies have focused on the composition and effectiveness of board members, little attention has barely focused on the interaction between the identity of significant shareholders and the decisions they influence in the firm. Corporate governance literature is currently based on empirical studies in developed countries, but the efficiency of developed and developing markets corporate governance mechanisms is disparagingly different. This paper presents an ideal moment for examining the complementary effect of dividend policy and ownership concentration by shareholders at Nairobi Securities Exchange in a developing securities exchange. Previous studies examining the interaction between corporate governance and firm value have emphasized the significance of institutional shareholder concentration and dividend policy decisions as corporate control mechanisms that influence value creation in a firm. This study is supported by dividend signaling and institutional shareholder monitoring hypothesis. The study used longitudinal data for the period (2008-2017) and the target population is sixty-six companies trading securities at NSE 2008-2017. Empirical results reveal, firms listed at Nairobi Securities Exchange have a high level of ownership concentration and dividend payment has a significant positive effect on the firm value which is in line with the signaling hypothesis, the mediating effect of ownership concentration was negated therefore did not support shareholder monitoring hypothesis. The findings of this study have significant policy implication to policymakers, regulators should not rely on market mechanism as protection to minority owners. Firms should be encouraged to regularly pay dividends if profitable and investors should understand the ownership structure of listed firms they invest in.

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