The Role of Profitability in the Relationship between Dividend Payout and Market Value of Shares of Non-Financial Companies Listed on the Palestine Exchange

Ali Aljadba; Islam Omar

doi:10.64190/abj.1.2.2026.21

Ali Aljadba ⁽¹⁾ , Islam Omar ⁽¹⁾

(1) Al-Aqsa University, Palestine, State of

https://doi.org/10.64190/abj.1.2.2026.21

Issue
Vol. 1 (2026): Early View - 2026

Submitted
January 4, 2026

Accepted
February 26, 2026

Published
February 26, 2026

Keywords:

Dividends Payouts, Stock Market Value, Profitability, Palestine Exchange

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Abstract

This study aimed to examine the relationship between dividend payout and the market value of shares of non-financial companies listed on the Palestine Exchange, as well as to investigate the role of profitability as a potential moderating variable in this relationship. The study adopted a descriptive-analytical approach, analyzing data from 28 non-financial companies listed on the Palestine Exchange during the period (2014-2022), comprising 252 observations. To test the study hypotheses, panel data techniques and outputs from the STATA statistical software were employed. The study utilized multiple regression analysis using the ordinary least squares (OLS) method. The findings revealed a positive moderating role of the profitability ratio (ROE) on the relationship between dividend payout and the market value of shares.
Moreover, the study demonstrated a strong positive relationship between dividend payout and return on equity (ROE) on one hand, and the market value of shares on the other. The study presented several recommendations, the most significant being the necessity of aligning dividend payout policies with investor requirements, with emphasis on profitability and improving financial performance to enhance market value. Additionally, sustainable dividend payout strategies should be established to balance reinvestment and dividend payout, alongside improving capital structure. Furthermore, financial risk analysis and strategic planning should be conducted to mitigate potential shocks, adopting a combination of cash dividends and reinvestment to achieve sustainable growth while implementing balanced financing policies.

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References

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Authors

Ali Aljadba

Al-Aqsa University, Palestine, State of

https://orcid.org/0000-0003-3296-7841

ah.jadba@alaqsa.edu.ps (Primary Contact)

Islam Omar

Al-Aqsa University , Palestine, State of

Author Biography

Islam Omar, Al-Aqsa University

Master’s

Al-Aqsa Univeristy, Gaza, Palestine

Aljadba, A., & Omar, I. (2026). The Role of Profitability in the Relationship between Dividend Payout and Market Value of Shares of Non-Financial Companies Listed on the Palestine Exchange. Arado Business Journal, 1, 199–222. https://doi.org/10.64190/abj.1.2.2026.21

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Introduction

The topic of dividend payout policy has garnered considerable attention during the past decade, as many believe that such policy may influence the value of companies and their share prices in the market. The dividend payout decision is considered one of the most fundamental decisions in a company, alongside investment and financing decisions. Consequently, dividend payout policy is no less important than any other corporate decision, which has prompted numerous financial and economic scholars to devote significant attention to this policy. There exists extensive debate among financial and economic scholars regarding the impact of dividend payout policy on market value, which has led to new endeavors to explain corporate behavior in this domain (Eita, 2021).

Dividend payout policy is regarded as one of the critical financial policies in a company and is subject to several considerations in its determination. Various theories attempt to explain investor behavior toward dividend payout policy. Dividend payout policy represents one of the most extensively researched topics in financial accounting. Understanding the relationship between dividend payout policy and the market value of shares is crucial, as dividend payout policy holds profound significance for diverse stakeholders, including investors, lenders, and managers. Profits are not merely a source of income but serve as a vital indicator for evaluating corporate performance. In this context, the concept of market value of shares emerges as one of the fundamental criteria for company valuation, as this indicator is influenced by the company’s financial position and surrounding economic conditions (Mashkour, 2018).

Dividend payout policy is considered one of the pivotal financial policies in economic institutions, particularly due to its direct connection with shareholders and its impact on the company’s share prices in financial markets. This policy represents an ongoing area of research and discussion in financial management and investment, as it involves making decisions regarding the payout of a company’s net income between distributed dividends and retained earnings. Dividend payout policy must be formulated in accordance with the objectives of the economic institution, ensuring the maximization of shareholder wealth (Ben Omar & Fakhr El-Din, 2022). Dividend payout is considered a reward to shareholders for their investments in the entity and their assumption of risks. Therefore, dividend payout policy should consider the entity’s objectives in a manner that contributes to maximizing shareholder wealth (Alkorshi, 2020). Shareholders demand increased dividend payout based on information derived from financial statements and reports. Dividend payout policy represents the outcome of several factors that influence the company’s decision regarding payout, whether cash payout through profit disbursement or in-kind payout through the payout of bonus shares financed from retained earnings (Gyapong, 2019). Thus, dividend payout policy is considered a fundamental issue in companies due to its prominent impact on investment and financing decisions. If a company decides not to distribute dividends or to distribute lower dividends, it will have more internal funds, thereby reducing its need for external funds. Conversely, if the company distributes high dividends, it will have fewer internal funds, increasing the company’s dependence on debt or other forms of external financing (Eita, 2021).

The profitability factor is considered one of the most important factors that receives attention from all investors, owners, and lenders. Profitability expresses the relationship between the profits achieved by investments and projects, and it is one of the most important objectives that shareholders expect to achieve, as it serves as an indicator for judging the efficiency and effectiveness of companies. Consequently, it is considered one of the most important decisions that significantly affect the company’s future, as these decisions represent the policies that the company follows, such as investment, financing, and dividend payout policies, with the objective of achieving planned goals. Given the direct relationship between dividend payout policy and shareholders, it is considered one of the most important financing issues. Moreover, dividend payout policy is considered one of the principal decisions faced by senior management, as it is responsible for choosing between distributing dividends to shareholders, thereby reducing the company’s internal financing and increasing the market share of its shares, or retaining profits to increase financing sources and enhance available investment opportunities for the company (Makhlouf, 2019). Therefore, it can be stated that profitability has a direct relationship with dividend payout and the market value of shares, as it indicates the company’s ability to generate profits, and these profits serve as an important indicator of the company’s success in achieving its financial objectives.

The Palestine Exchange plays a vital role in advancing the Palestinian economy forward. With the increasing number of companies listed on the Palestine Exchange and the growing number of shareholders in these companies, coupled with the significant role these companies play in the growth of the Palestinian economy, the financial performance of these companies constitutes an increasing concern for Palestinian investors, as it is considered an indicator of the company’s success. The profits achieved by the company play a positive role in determining the share price for these companies, and dividend payout provide a positive indicator to shareholders regarding the company’s condition (Heriz, 2018).

Some companies listed on the Palestine Exchange experience volatility in dividend payout policies, as these policies do not always reflect the company’s profitability level. Indeed, some highly profitable companies do not distribute dividends at all, which affects the market value of shares and consequently the entity. This raises questions about the factors influencing payout decisions and their reflection on the market, as well as the

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The Role of Profitability in the Relationship between Dividend Payout and Market Value of Shares of Non-Financial Companies Listed on the Palestine Exchange

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