Moderating Effect of Industry Concentration on the Dividend Payout Ratio-Share Price Relationship: Evidence from the Nairobi Securities Exchange

Abstract

This study examines the moderating effect of industry concentration on the relationship between dividend payout ratio (DPR) and share prices among firms listed on the Nairobi Securities Exchange (NSE). The study employed a positivist philosophy and a longitudinal quantitative design, adopting a census approach that included all 20 firms in the NSE 20 Share Index over 2014–2023, yielding 200 firm-year observations. Secondary data were sourced from audited financial statements and NSE price reports. The Herfindahl-Hirschman Index (HHI) measured industry concentration. Four panel regression models were estimated: Pooled OLS, Fixed Effects (firm effects only), Fixed Effects (firm and year effects), and Random Effects (firm and year effects), with cluster-robust standard errors. The study found that DPR had a negative effect on share prices (β₁ = -0.298, p = 0.045). Industry concentration positively moderated the DPR-share price relationship (β₄ = 1.502, p = 0.001). Marginal effects showed that in competitive industries, a one-percentage-point increase in DPR reduced the share price by 0.253 KES, while in highly concentrated industries, the same increase raised the share price by 0.340 KES, a complete sign reversal. This study presents the first empirical evidence that industry concentration is a boundary condition determining the credibility and market impact of dividend signals, thereby extending Signaling Theory through a Contingent Dividend Signaling Framework.