EFFECT OF DIVIDEND POLICY ON PERFORMANCE OF ISLAMIC BANKING IN KENYA
Abstract
Even though banks work in the same environment, the dividend paid out by a given institution differs from one bank to the other. It clear that there lacks a consensus regarding the Kenyan dividend policy. Dividend payout is a pertinent issue in regard to the firm’s financial performance, yet it’s one issue that has remained unresolved in the field of finance. Hence this study was relevant to determine if the dividend payout policy has a significant effect on financial performance of Islamic banking in Kenya. This study was guided by the following specific objectives; to identify the effect of Riba on performance of Islamic banking in Kenya; and to establish the effect of dividend payout ratio on performance of Islamic banking in Kenya. The theoretical foundation for this study was dividend irrelevance theory, and signal effect theory. The study adopted descriptive research design. The study targeted all the 5 registered Islamic banking institutions under CBK. Data was collected between 2017 and 2021. Secondary data was used and was collected from Central Bank of Kenya Supervisory Reports and banks’ websites using secondary data collection sheet. Data processing and analysis was done using statistical STATA software version 13. Both descriptive and panel data regression was used to analyze the data. The findings were presented in tables and figure. Data was analyzed using multiple regression models using SPSS version 21 as the data analysis tool. Based on the findings 76.9% of the banks did not earn enough revenue to cover the actual financing direct costs, which include the total operating costs, loan loss provisions and the financing costs but excluding the cost of capital. The analysis of variance (ANOVA) table indicated that the predictor variables influenced the predictor variable significantly at 5% significance level. The Performance of Islamic Banking institutions change by 0.347 and 0.196 for every unit change of Riba and dividend payout ratio respectfully. Therefore, for the Islamic banks institutions to remain afloat in the lending business, they should utilize any borrowing opportunity, plough back profits to the business.[1]
[1] Abdullahi, O., Njeru, A., & Noor, I., (2023). Effect Of Dividend Policy on Performance Of Islamic Banking In Kenya. International Journal of Social Science Management and Entrepreneurship, 7(2023), 393-405
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