The dynamics between dividends, financing and investments: Evidence from Jordanian companies

Abstract

Dividend decisions, Financing decisions and Investment decisions are three very imperative decisions taken by a firm. The effect of these decisions is on the performance of the firm which subsequently effects the valuation of the firm. These decisions in a firm are also influenced by the growth and status of the respective economy. The current research attempts to analyze the dynamics between these three major decision areas and also assess their relationship with the market value of the firm. These dynamics are further tested against the economic growth of the respective economy. Annual data for 50 companies from Jordanian economy for the time period 2007-2018 is used to achieve the objective. Basic and advanced statistical techniques such as regression analysis and Vector Auto Regression (VAR) have been used in the study. The sample involved 50 Jordanian companies. The study found that the value of the firm is affected by three key decisions (value drivers) of dividend, investment and financing and this effect is best measured at a lag of two years. Also the combined effect of the three value drivers is more than standalone effect.