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

Al-Najjar, Basil (2011) The inter‐relationship between capital structure and dividend policy: empirical evidence from Jordanian data. International Review of Applied Economics 25 (2), pp. 209-224. ISSN 0269-2171.

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Official URL: http://dx.doi.org/10.1080/02692171.2010.483464

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.

Item Type: Article
Keyword(s) / Subject(s): capital structure, dividend policy, panel data, emerging markets, single equation, reduced form equations,joint determinants
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Management
Depositing User: Dr Basil Al-Najjar
Date Deposited: 25 Oct 2012 16:03
Last Modified: 17 Apr 2013 12:25
URI: http://eprints.bbk.ac.uk/id/eprint/5376

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