Effect of Bank Specific Characteristics, Capital Adequacy on Dividend Policy: Mediation Approach

Abstract

Purpose: The purpose of this paper was to establish the mediating effect of capital adequacy on relationship between firm characteristics and dividend policy. The study anchored on the buffer theory of capital adequacy.

Material/methods: This study followed positivism approach while employing longitudinal research design. Data was collected from a census of forty-three (43) commercial banks registered by Central Bank of Kenya (CBK) and Nairobi Securities Exchange (NSE). Content analysis of 10 years was conducted. Mediated approach under panel data framework was used to test the hypotheses. 

Findings: The findings showed that capital adequacy partially mediate the relationship between bank ownership and leverage. This infers that with higher capital adequacy the less the bank specific variables affect dividend policy. Thus, capital adequacy might hinder or improve the effect of bank concentration ownership and leverage on dividend policy. 

Theoretical and managerial implication: Based on the findings the study recommends that introduction of capital adequacy should be carefully implemented with agreement from private sector particularly banking sector. Further, the study provides a mediation framework of capital adequacy on relationship between concentration ownership, and leverage dividend policy which has been less studied in emerging economies like Kenya. Further, introduction of fixed minimum requirements for banks should be competitive to relative to other forms of intermediation.