Cash flows, capital structure and shareholder value: Empirical evidence from Amman stock exchange

Abstract

The current study links the information contents of the three main financial statements in a balanced panel data model to empirically examine the effect of cash flows per share and capital structure on shareholder value. The results of the study are based on a sample of 270 firm-year observations from the Jordanian commercial banks and insurance companies that listed on Amman Stock Exchange (ASE) from 2011 to 2019. Based on the Fixed Effect Model (FEM) with Driscoll-Kraay standard errors, the empirical results show that cash flows from operating activities per share had a positive and significant relationship with shareholder value, whereas both the cash flows from investing and financing activities per share had negative but insignificant relationship with shareholders’ value. Results also show that capital structure had a negative but insignificant relationship with shareholder value. Finally, the results indicate that dividend per share had a positive and significant relationship with shareholder value. Accordingly, decision-makers should direct cash to efficient investment projects in order for cash outflows from investing activities to create value to shareholders and to generate positive cash flows from financing activities. Similarly, an appropriate capital structure should be selected to create value for shareholders.

Cashflow Volatility, Corporate Investments and Value of Nonfinancial Firms Listed in Kenya

“…Conflicting results have been found from an empirical analysis of literature regarding the effect of cashflow volatility on firm value. Sawalqa (2021), Gworo (2019), and Shipe (2015) observed a positive correlation whereas Rountree, Weston, and Allayannis (2008), Mäkelä (2012), and Altuntas et al (2017) observed an inverse association. According to Rountree et al (2008), information asymmetry causes organizations with low cashflow volatility to be valued more than those with significant volatility.…”

“…Businesses need sufficient cash reserve and a suitable capital structure to accomplish this goal. Cashflow is crucial for generating shareholder value because it gives businesses the liquidity, they need to fulfil daily expenses, pay off debt, and distribute dividends to shareholders (Sawalqa, 2021). Investment in capital expenditure is dampened by cashflow uncertainty brought on by macroeconomic disturbances including variable currency rates, political unpredictability, regulatory changes, and poor weather because firms need to conserve cash during the uncertainty (Vengesai & Kwenda, 2018).…”

Determinants of the Sales Market of Products of Meat Processing Complex in the Innovation and Investment System of Regional Polarized

“…Investment-cash flow sensitivity was studied by S. Agca and A. Mozumdar [7], A. Ascioglu et al [8], F.A. Al Sawalqa [9]. Management of innovation and investment were main subject in researches of P. Grechan et al [10], A. Kosenko [11], D. Ben Amara [12], I. Kriuchkova and S. Filippova [13].…”