Cash Flows and Earnings for Share in Islamic Banks: Jordanian Evidence

Abstract

This study provides evidence on the effect of cash flows extracted from operating, investing, and financing activities attributed to the net profit, total assets or liabilities on the return per share for Jordan Islamic Bank, International Islamic Arab Bank, and Al-Rajhi Islamic Bank. The methodology is based on panel regression analyses of annual report data for Jordan listed Islamic Banks for the year from 2005 to 2019. The return on a stock plays an important role in investing and financing operations. Thus, the cash flows are weak in the short term and quickly increase in the long run. Results show a negative relationship between cash flow and return on a stock, except for cash flows from operating activities, which have a positive relationship with the return on a stock in the second and third models. The reason for this positive relationship is either the increase in operations from untapped money does not increase the size of assets or liabilities or the decrease in operations leads to an increase in profits and thus an increase in the return on the stock. This association indicates moderation in maintaining the amount of cash. Any risk facing the bank from withdrawals or financing operations is covered without affecting the size of the bank’s profits until the turnout by investors increases and the profit increases.