The Financial Structure of an organization is the composition of its equity, short-term and long-term debt, and internal funds that it has selected to run its operation. In business, the management must decide whether to use debt both short term and long term, retained earnings, equity, or a combination of both putting into consideration factors such as the cost of capital, business expansion rate, business risk, market condition, tax exposure, and dividend policy. The dividend policy determines the portion of the company’s net profit paid back to the shareholders as their reward. Over the years we have seen a progressive increase in profit and increase in short-term debt, but the dividend policy is not proportional to financial structure and the profit over time. The main objective of this study was to assess the relationship between financial structure and dividend policy of commercial banks listed on the Nairobi Security exchange. The other objectives are to assess the effect of financial structure components this is Equity Capital, Short Term Debt, long-debt financing, and retained earnings on dividend policy. The study population comprised of 10 publicly listed commercial banks in Kenya as at the end of 2021. Secondary data was collected from the Capital market Authority, Central bank, and Nairobi Security Exchange over ten years from the year 2012 to 2021.The study adopted quantitative research design. The data was analyzed using STATA version 14.2, where the following tests were conducted on the panel data to get the best result; normality test, multicollinearity test, unit root test/stationarity test and Hausman test. The banks were analyzed based on census survey to get the best resultsbased on Random effect GLS Regression analysis after a Hausman test. The finding shows that financial structure had a significant effect on dividend policy of listed commercial banks. The results show that each variable, ordinary share capital had a positive significant effect on dividend policy for listed commercial banks, short term debt showed an insignificant positive relationship on dividend policy, long term debt had insignificant positive effect on dividend policy and retained earnings has a positive significance influence on dividend policy. The study Model showed that there exists an optimal dividend policy that satisfies the interest of both the managers and the investors. Hence the study supports the tradeoff theory of capital structure, Agency Theory, pecking order theory and didn’t support the dividend irrelevance theory by Modigliani and Miller proposition. Thus, each bank should have its own benchmark on financial structure ratios with a buffer beyond the minimum requirement as specified by the regulatory requirement and the Basel 111 accord based on the safety level. Therefore, banks should pay a dividend based on the optimal dividend policy. The results and analysis of the study have raised additional questions to be addressed in future studies. The study did not use moderating variable therefore further studies to be conducted using bank size, ownership structure and regulatory compliance as moderating variables to find out if similar results will be arrived at.

Keywords : Financial Structure,Dividend Policy, Dividend Pay Out Ratio,Ordinary Share Capital Shortterm Debt, Long Term Debt And Retained Earnings.