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The study was designed to test for the existence of dividend clientele among companies
quoted on NSE. In the view of conflicting empirical evidence from the test conducted in
different context and stock markets, this research paper intended to focus on tax dividend
clientele and investigate the situation in Kenya to answer the question; Do dividend
clientele exist in Nairobi Stock Exchange?
The study population and sample consisted of all 54 companies listed on the NSE over
the period between 2005-2008. The companies that did not trade for all the four years
under consideration were eliminated. This left a total of 42 companies.
These companies were grouped according to their shareholding structure consisting of
foreign investors, local institutional investors and local retail individual investors. A
particular category of shareholders with more than 25% of shareholding in a company
was taken to have effective control. Data regarding cash dividend payment and market
prices for each company was collected from NSE. Data on ownership structure was
obtained from CMA and NSE. Average dividend yield for each company was determined
and stratified into three classes of high, average and low. A chi-square was used to test
the hypothesis to accept or reject the null hypothesis.
The findings were that dividend clientele exist among firms with effective local
institutional shareholders control which could be attributed to their tax advantage on
dividend income. However, among foreign investors and local individual investors there
was no evidence to support existence of dividend clientele among these investor groups
This could be attributed to the tax differential treatment of foreign investors on dividend
income, and the fact that capital gains are tax exempt.
Local individual investors lack of dividend preference could be attributed to their small
shareholdings and hence tax disadvantage suffered by this investor group is minimal.
These investors also lack effective control on these companies hence they are unable
to influence major policies of these companies including dividend policies.






Assistant Coordinator

Dr. Mose Aranga

Assistant Coordinator

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