EFFECT OF DIVIDEND PAY OUT ON THE LIQUIDITY OF LICENSED NON- DEPOSIT TAKING SACCOS IN NAIROBI COUNTY

Abstract

Dividend decision is a finance function which involves determination of the amount distributed to shareholders as incomes or quantity to plough inside. The determination of dividend payout is influenced by the liquidity position of the licensed non-deposit taking Sacco but the degree to which dividend payout distresses the liquidity still remains a puzzle since most empirical studies accompanied have recounted unreliable consequences and no universally accepted explanation for Saccos with adequate liquidity have perceived constant dividend payment behavior. This study sought to establish the effect of dividend payout by examining the effect of capital mix and transaction cost on the liquidity of non-deposit taking Saccos in Nairobi County. The study employed descriptive research design on a target population of 13 licensed non-deposit taking Saccos. The target population was the 13 non-deposit taking Saccos which paid dividends from the year 2012 to 2015. Data analysis was prepared by means of descriptive and inferential statistics. The study revealed that dividend payout plays a major role in the liquidity because of the advanced coefficient as likened to their cash flows and working capital that subsequently the Saccos which posted high profits translated to high dividends paid out to their members. From the results it was concluded transaction cost that was measured by the interest amount of the non-deposit taking Saccos had a significant and positive influence on the liquidity of the non-deposit taking Saccos. The study aimed at recommending Saccos to ensure that profits are stable, cash flows freely flowing into the Sacco are efficiently managed so as to increase their liquidity. The results also provided critical information to the Board of Directors to determine an optimum dividend payout that would capitalize on the Sacco's profits and thus lead to intensification of the members' wealth. The study also formed a center for additional research and added knowledge to the existing body.