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


  • Basil Al-Najjar


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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    References listed on IDEAS

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    2. Axel A. Weber & Wolfgang Lemke & Andreas Worms, 2008. "How useful is the concept of the natural real rate of interest for monetary policy?," Cambridge Journal of Economics, Oxford University Press, vol. 32(1), pages 49-63, January.
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    4. Luiz Fernando de Paula, 2007. "FINANCIAL LIBERALISATION, EXCHANGE RATE REGIME AND ECONOMIC PERFORMANCE IN BRICs COUNTRIES," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 016, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Alvaro Angeriz & Philip Arestis, 2007. "Assessing the Performance of 'Inflation Targeting Lite' Countries," The World Economy, Wiley Blackwell, vol. 30(11), pages 1621-1645, November.
    6. Luis Miguel Galindo & Jaime Ros, 2008. "Alternatives to inflation targeting in Mexico," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(2), pages 201-214.
    7. Philip Arestis & Malcolm Sawyer, 2008. "Are the European Central Bank and Bank of England Macroeconomic Models Consistent with the New Consensus in Macroeconomics?," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 11(2), pages 51-68, Winter.
    8. Reisen, Helmut & Grandes, Martín, 2005. "Exchange rate regimes and macroeconomic performance in Argentina, Brazil and Mexico," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
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    Cited by:

    1. repec:eee:touman:v:49:y:2015:i:c:p:87-96 is not listed on IDEAS
    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, vol. 11(1), pages 44-59, February.
    3. 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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