Effect Of CEO Compensation on Dividend Payout Policy

Abstract

Purpose - This study seeks to investigate the association between CEO compensation and dividend payout policy among listed firms in Kenya. Design/methodology/approach - The study used a sample of 40 firms listed in the Nairobi Securities Exchange(NSE) over the period 2009-2019. Data was analysed using fixed and random effect models to test the research hypothesis. Findings - The empirical results show that CEO compensation is significantly and positively associated with dividend payout policy. Practical implications – The study indicates that CEO compensation can be used as a corporate governance mechanism to lower agency conflict. Therefore, the findings offer useful information for managers and regulators in evaluating the effect of CEO compensation on shareholder return. Research limitations/implications - Due to a lack of data on equity compensation, the study cannot conclusively determine the effect of CEO compensation on dividend payout policy. Originality/value - Unlike previous studies that focused on the relationship between CEO compensation and accounting-based measures such as firm performance, this study contributes to the literature by examining the relationship between CEO compensation and dividend payout policy.