Do Profitability and Leverage Influence Dividend Policy? Evidence from Emerging Countries

Amanj Mohamed Ahmed (), Mária Fekete-Farkas () and István Hágen ()
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Amanj Mohamed Ahmed: Hungarian University of Agriculture and Life Sciences
Mária Fekete-Farkas: Hungarian University of Agriculture and Life Sciences
István Hágen: Hungarian University of Agriculture and Life Sciences

A chapter in Corporate Practices: Policies, Methodologies, and Insights in Organizational Management, 2024, pp 495-509 from Springer

Abstract: Abstract Competition among firms to attract investors is significant for attracting them to invest their capital. This can be achieved by demanding firms to execute different policies, and one of the crucial policies is dividends. This paper aims to examine the effect of profitability and leverage on dividend policy decisions for Jordanian firms that are listed on the Amman Stock Exchange (ASX). A panel econometric model was developed to achieve this goal. The secondary data was collected from the audited annual report of 50 firms between 2017 and 2021. Dividend policy is the dependent variable measured by the dividend payout ratio (DPR). Profitability is considered an independent variable and indicated by return on assets (ROA) and return on equity (ROE). Leverage is another independent variable in this study and is proxied by the debt-to-equity ratio (DER) and short-term debt-to-assets ratio (STDA). The findings illustrated that profitability and leverage are related to DPR negatively. However, in the case of STDA, the result is statistically insignificant. These results are consistent with findings from the prior studies and supported by the pecking order theory, which claims that companies with high profitability pay fewer dividends as the earnings are used to fund their activities, and also supported by agency theory, which asserts that firms that have prominent levels of debt, often pay less dividends.

Keywords: Profitability; Leverage; Dividend policy; Amman Stock Exchange; Emerging markets (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/978-981-97-0996-0_29

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