Abstract
This paper aims to investigate the validity of Catering Theory of dividend in the Jordanian market. Utilizing unbalanced pooled cross-sectional time series OLS regression model for all Amman Stock Exchange listed companies, after excluding the financial sector firms and non-consistently dividends-paying firms, for the time period of 1999–2013. Findings indicate that dividend premium, a proxy for Catering Theory, is affected by the explanatory variables. Therefore, the study concluded that Amman Stock Exchange listed companies counts for the investors require for dividends and react to this require in their dividend policy, and thus, confirming the validity of the Catering Theory of dividend in the Jordanian market.
Highlights
Dividend policy has long considered one of the most important topics in the financial literature
Since the M&M 1961 irrelevance proposition, many researchers have proposed several explanations for the dividends in inefficient markets, and in spite of the size of these studies and their concentration on the US-market, there is no definitive answer to why investors prefer dividend
Behavioral finance literature is considered one of the most important evidence that cast doubt on the fact that the investors are indifferent with regard to dividends, assuming that psychological characteristics of investors will affect the behavior of financial markets, and the irrational behavior of investors determines the control procedures of the financial markets
Summary
Dividend policy has long considered one of the most important topics in the financial literature. Since the M&M 1961 irrelevance proposition, many researchers have proposed several explanations for the dividends in inefficient markets, and in spite of the size of these studies and their concentration on the US-market, there is no definitive answer to why investors prefer dividend. Behavioral finance literature is considered one of the most important evidence that cast doubt on the fact that the investors are indifferent with regard to dividends, assuming that psychological characteristics of investors will affect the behavior of financial markets, and the irrational behavior of investors determines the control procedures of the financial markets. The equilibrium clientele theory considered the first theory that provided explanations for investors' desire to obtain dividends. This theory suggests that a changes in investors’ desire for dividends is associated with change in dividend policies
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