Investigating the Asymmetric Dynamic Financial Behavior in Jordanian Firms of Amman Stock Exchange: An Empirical Study

Abstract

The study aims at investigating the financial behavior of Jordanian firms by using the asymmetric dynamic model of the Pecking Order Theory between 2000 and 2016. This research is based on a panel data of 952 observations from a sample of 56 industrial firms from Amman Stock Exchange (ASE). Estimating the static symmetric model and using the random effect model, the study ddoes not find any support for the implementation of the pecking order theory by Jordanian firms except for well-established firms, where the financing deficit coefficient is statistically significant and equal to one. Furthermore, the results indicate that the financial decisions of some Jordanian firms are affected by free cash flow agency costs while other decisions are affected by the bankruptcy risk. This confirms the severeobstacles of the capital market in Jordan and their direct impact on the financial decisions of the Jordanian firms. Therefore, the study recommends the effective implementation of the principle of transparency and the development of legislation to ensure effective control of the market and protection of investors.