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.
Highlights
Management of a firm involves decision making at various levels and of various nature
The variables used in the study are Dividend payout ratio (DP), Debt-Equity ratio (DE), Fixed Assets (FA), Current Market Price (CMP) and Gross Development Product (GDP)
The logarithm value of the GDP level for the country along with the logarithm of other four variables were compared on time axis (Chart 1) which indicates a similar pattern in the values for debt equity and dividend payout
Summary
Management of a firm involves decision making at various levels and of various nature. Dividend decisions, Financing decisions and Investment decisions are three very imperative and critical decisions taken by a firm and are the three important functions of a firm. The effect of these decisions is on the performance of the firm which subsequently effects the value of the firm. Kumar and Sujit (2018) study three value drivers involving financing, dividendand investment in a firm. Companies that can display a strong financial performance are by default more inclined to satisfy one of the most important stakeholders, namely investors and shareholders (Chakravarthy, 1986). Cho & Pucik (2005) argued that financial performance as a method to satisfy investors can be represented by profitability, growth and market value
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