Dirasat, Administrative Sciences, Volume 37, No. 1, 2010 - 229 - Dividend Policy at the Amman Stock Exchange: The Stability Issue During 1995-2005 Khaldoun M. Al-Qaisi and Ghassan M. Omet* ABSTRACT The issue of the financing choice of firms and their dividend policies are important because the cost of capital and hence the value of firms depend on these financial choices. Based on this, one can argue for the importance of understanding dividend policy in the developing countries. The primary objective of this paper is to determine whether or not listed Jordanian companies have stable cash dividend policy. In addition, this paper compares the cash dividend policy of the various sectors in Jordan. Based on the time period 1995 – 2005, and panel data analysis, the results indicate that listed Jordanian companies follow stable policies albeit at a lesser degree than companies which operate in advanced countries. Keywords: Amman Stock Exchange, Dividend Policy, Stability, Industrial Sectors. 1. INTRODUCTION Corporate finance is concerned with three long-term issues and these are capital investment, financing, and dividend policy. While the objective of the capital investment issue is to examine and determine those projects which add economic value to the firm, the issue of how firms raise the necessary funds for the proposed capital investment projects involves the determination of the “optimal” capital structure (debt to equity ratio). Finally, the issue of dividend policy involves the policy a firm uses to decide how much it will pay out of its profits to shareholders in the form of cash dividends. Relative to the above-mentioned corporate finance issues, it is important to note that they are interrelated. For example, the fact that dividend policy affects the capital structure of firms (debt to equity ratio), it also affects their cost of capital. In other words, by affecting the cost of capital of firms, dividend policy has a direct effect on firms’ capital investment activities. Against the above brief background, one should not really be surprised from the fact that the finance literature contains many papers which examine how firms carry-out their capital investment analysis, and determine their capital structures and dividend policies. Some of the survey papers which examine how firms appraise their capital investment projects include Graham and Harvey (2001), Parry et al. (2001), Lazaridis (2004), Hermes et al. (2005), Truong et al. (2005), and Beattle et al. (2006). These papers examine, for example, whether or not firms use discounted cash flow methods like the Net Present Value (NPV) as opposed to simple (less sophisticated) methods such as the Payback Period (PBP) and Profitability Index (PI). The capital structure choice of firms (leverage) has also resulted in many empirical papers including Titman and Wessels (1988), Harris and Raviv (1991), Rajan and Zingales (1995), Demirguc - Kunt and Maksimovic (1996), Bevan and Danbolt (2000), Desai et al. (2003), Mintz and Weichenrieder (2004), Voulgaris et a. (2004), Antoniou et al. (2005), Datta et al. (2005), Du and Dai (2005), Marchica (2005), Arslan and Karan (2006), Claessens et al. (2006), Li et al. (2006), (Huizinga et al., 2007), and others. As far as the capital structure of firms which operate in developing economies are concerned, it is useful to note that following the pioneering works by Singh and Hamid (1992) and Singh (1995), a growing number of papers examine the capital structure choice in these countries. Some of these papers include Manos and Ah- Hen (2001), Pandey (2001), Mutenheri and Green (2002), Huang and Song (2002), Deesomsak et al. (2005), Tong and Green (2005), Love (2005), Klapper et al. (2006), Li *. Department of Finance, Al-Zaytoonah Private University, Amman, Jordan; New York Institute of Technology, Amman, Jordan. Received on 14/1/2008 and Accepted for Publication on 13/10/2008. * This Paper is based on some of the results of the Ph.D. by Al-Qaisi. © 2010 DAR Publishers/University of Jordan. All Rights Reserved.