Effect of Earnings Persistence on Dividend Payout of NonFinancial Firms Listed at the Nairobi Securities Exchange

Abstract

This study examined the effect of earnings persistence on dividend payout among non-financial firms listed at the Nairobi Securities Exchange (NSE). Earnings persistence is widely recognized as an important dimension of earnings quality because it reflects the sustainability and recurrence of reported earnings, thereby influencing investors' expectations regarding future cash flows and dividend payments. The study was based on agency theory and the signalling theory. The study adopted a positivist research philosophy and an explanatory research design. The study used balanced panel data from 40 non-financial firms listed at the NSE over the period 2015-2024, generating 400 firm-year observations. Secondary data were obtained from audited annual reports and financial statements of the sampled firms. Descriptive statistics, correlation analysis, the Hausman specification test and random effects panel regression were employed. The Hausman specification test supported the use of the random effects estimator. The findings indicate a positive and statistically significant relationship between earnings persistence and dividend payout. The study concludes that firms with more persistent earnings are more likely to maintain higher and more sustainable dividend payouts. The study recommends that managers strengthen earnings quality by focusing on sustainable operating performance rather than transitory earnings to support consistent dividend policies and enhance shareholder confidence.