The relationship between interim dividend change and future earning for listed companies in Kenya
Earnings forecast have serious implication in asset allocation and portfolio selection. Dividends play significant role in forecasting and signaling future earnings and investors expect share price to react positively or negatively to any dividend announcement. The reason why investors pay attention to dividends at either interim or final stage raises the question whether managers use interim dividends for signaling purposes and managers consider future earning when making interim dividend decisions. The study tries to deepen our understanding of information content and signaling theory of dividends on future earning with specific focus to interim dividends (1999-2012). The data for the study were collected from a sample of 25 companies‟ interim financial reports and annual financial reports spanning a period of 14 years (1999-2012). The variables for study included interim dividends, earning and specific company characteristics. The data was analyzed using panel data fixed effect and pooled regression model. From the regression results, the study failed to support information content theory and signaling hypothesis of dividends with regard to future earning at 5% significance level. To corroborate the finding of regression, the study adopted triangulation to investigate managers perspectives with regard to interim dividends and data obtained through questionnaires. From the findings, results from questionnaire were consistent with regression results. It was also observed that on average companies listed in Kenya have tendency of skipping interim dividends and when they pay, they are reluctant to cut interim dividends instead they prefer paying stable (constant) interim dividends.