Arab Stock Markets and Capital Investment. AMF Economic Papers, Number 8

Thursday, January 1, 2004
Dr. Ali Bolbol and Dr. Mohammad Omran
Title Arab Stock Markets and Capital Investment. AMF Economic Papers, Number 8.
Author Dr. Ali Bolbol and Dr. Mohammad Omran
Publication Date 01/01/2004
Description
What role do stock returns play in determining investment? In this paper, we investigate the independent effect of stock returns on investment within the context of four hypotheses: passive informant, active informant, financing, and stock market pressure. Using a sample of 83 firms from five Arab countries during 1996-2001, we find that the passive informant hypothesis holds true, with only sales and debt growth as significant determinants of capital expenditures. Surprisingly, cash flow has no effect on investment, which could mostly be due to the dividend policy of Arab firms. The fact that Arab stock markets do not allocate capital expenditures unwarranted by fundamentals gives support to current efforts at strengthening Arab stock markets.
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