Evaluating the Effectiveness of the Bird-in-Hand-Dividends Policy in the Stability of Jordanian Listed Banks

Abstract

The present paper is empirically scrutinized the long and short-run causalities, which are running from the bird-in-hand dividends policy towards investors' preferences as proxied by banks’ stability. Through analyzing a quarterly data set covering the period Q1/1996-Q4/2018; results from the ADF test proved that the series variables became stationary only after including the first difference. However, although the Johansen test showed long-run integrations among variables; findings from the single equation of the error correction model asserted that there are no long-run causalities running from dividends’ policy towards investors’ preferences as captured by the Z-Score index “ZSI”, bankometer model or market capitalization. By contrast, results from the Waldtest proved that except for earnings per share and retained ratio; the solvency of banks is found to be significantly responding to the change in dividends payout ratio. However, since there are short-run correlations among dividends’ stability, investors’ preferences and banking stability, the study concluded that the ZSI is significantly related to investors’ attitudes towards banks' decisions regarding dividends’ payments.

Determinant Factors of Firm Value: Cash Holdings and Dividend Policy as Mediation

“…Research conducted by Ali (2020) resulted that the dividend policy has a positive effect on the value of the company. This is because the dividend policy is able to anticipate risks that may arise due to corporate bankruptcy and anticipate the solvency of the bank.…”