Empirical Investigation of Free Cash Flow Hypothesis: Evidence from Jordanian Capital Market

Ziad Zurigat, Iaad I.S. Mustafa Sartawi, Hassan Aleassa


This study aims to investigate free cash flow hypothesis proposed by Jensen (1986). Data pertaining to 102
non-financial firms listed on ASE during the period of 1998–2009 are analyzed using pooled and panel data
methods. Contrary to Jensen (1986) proposition, we found that debt and dividend are not substitute techniques
for mitigating agency costs of free cash flow in the Jordanian capital market, rather, they are complementary to
each other. However, debt is used more than dividend for stability consideration of dividend policy where the use
of debt and dividend is largely affected by dividend smoothing and leverage target adjustment considerations.
Moreover, we found that low growth firms use debt more than dividends.

Full Text:


DOI: http://dx.doi.org/10.5539/ibr.v7n3p137

International Business Research  ISSN 1913-9004 (Print), ISSN 1913-9012 (Online)

Copyright © Canadian Center of Science and Education

To make sure that you can receive messages from us, please add the 'ccsenet.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.