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The inter-relationship between capital structure and dividend policy: empirical evidence from Jordanian data

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  • Basil Al-Najjar

Abstract

The study investigates the under-researched relationship between capital structure and dividend policy in emerging markets with regard to the Jordanian market. The empirical analysis focuses on the estimation of both single equation models and structure equation models using the reduced form equations to examine the joint determinants of capital structure and dividend policy. The study investigates whether capital structure and dividend policy theories can explain the financial decisions in emerging market such as the Jordanian market. Namely, the study examines agency theory, signalling theory, pecking order theory and bankruptcy theory. The results indicate that there is a positive relationship between debt-to-asset ratio on the one hand, and asset tangibility, profitability, market-to-book, liquidity, firm size, and industry classification on the other hand. Also, there is a negative relationship between debt-to-asset ratio and profitability. In addition, there is a positive relationship between dividend payout ratio on the one hand, and profitability, asset tangibility, market-to-book and industry classification on the other hand. Finally, the results of the reduced form equations show that capital structure and dividend policy have the following common factors: profitability; asset tangibility; market-to-book; industry classification; and limited evidence of institutional ownership. Therefore, the determinants of capital structure and dividend policy in emerging markets such as the Jordanian market share the same set of suggested factors with the developed markets.

Suggested Citation

  • Basil Al-Najjar, 2011. "The inter-relationship between capital structure and dividend policy: empirical evidence from Jordanian data," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(2), pages 209-224.
    • Handle: RePEc:taf:irapec:v:25:y:2011:i:2:p:209-224
    DOI: 10.1080/02692171.2010.483464
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    Cited by:

    1. Al-Najjar, Basil, 2015. "Does ownership matter in publicly listed tourism firms? Evidence from Jordan," Tourism Management, Elsevier, vol. 49(C), pages 87-96.
    2. Aymen Ajina & Faten Lakhal & Danielle Sougné, 2015. "Institutional investors, information asymmetry and stock market liquidity in France," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 44-59, February.
    3. Valcacer, Santiago & José de Moura, Heber & Lopes , David & Amorim , Vinicius, 2017. "Capital structure management differences in Latin American and US firms after 2008 crisis," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 22(42), pages 51-74.
    4. Rój Justyna, 2019. "The Determinants of Corporate Dividend Policy in Poland," Ekonomika (Economics), Sciendo, vol. 98(1), pages 96-110, June.
    5. Tahir Akhtar & Mohammad Ali Tareq & Kashif Rashid, 2021. "Chief Executive Officers’ monitoring, board effectiveness, managerial ownership, and cash holdings: evidence from ASEAN," Review of Managerial Science, Springer, vol. 15(8), pages 2193-2238, November.
    6. Al-Najjar, Basil, 2013. "The financial determinants of corporate cash holdings: Evidence from some emerging markets," International Business Review, Elsevier, vol. 22(1), pages 77-88.

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