The Signaling Effects and Predictive Powers of Dividend Announcements: Evidence from Kingdom of Saudi Arabia

Journal of Business and Economics, ISSN 2155-7950, USA March 2015, Volume 6, No. 3, pp. 550-557 DOI: 10.15341/jbe(2155-7950)/03.06.2015/012

8 Pages Posted: 21 Nov 2016 Last revised: 11 Mar 2018

See all articles by Anas Al Qudah

Anas Al Qudah

Abu Dhabi University; Yarmouk University

Ahmed Badawi

American University of the Middle East (AUM)

Multiple version iconThere are 2 versions of this paper

Date Written: March 21, 2015

Abstract

The objective of this study is to see how the signaling hypothesis manifests itself in a small market, such as KSA, characterized by concentrated family-ownerships, non-taxability of dividends, and high degree of information asymmetry. In this context, we hypothesize that there is a positive relationship between dividend announcement and stock prices in the Saudi market. This study tests this hypothesis using all publically traded firms listed on the Saudi Exchange Market (Tadawul). We use event study to test stock market responses to dividend announcements. To test the signaling hypothesis we used our cross section data to calculate accumulated average abnormal returns using 100 days as estimation period and 21 days as window period. We used parametric CAAR (t test) and nonparametric (G sign) significance tests to verify that our results are significant and not due to pure chance. Our results show no significant reaction of prices to the dividend announcements, which means that signaling hypothesis cannot be generalized to all types of markets and that each market own characteristics have significant effect on the applicability of the signaling hypothesis. Further research is suggested to include earnings in the analysis.

Keywords: signaling hypothesis, dividend policy, event study, Saudi stock market

JEL Classification: G2, G3

Suggested Citation

AlQudah, Anas and Badawi, Ahmed, The Signaling Effects and Predictive Powers of Dividend Announcements: Evidence from Kingdom of Saudi Arabia (March 21, 2015). Journal of Business and Economics, ISSN 2155-7950, USA March 2015, Volume 6, No. 3, pp. 550-557 DOI: 10.15341/jbe(2155-7950)/03.06.2015/012, Available at SSRN: https://ssrn.com/abstract=2872969

Anas AlQudah (Contact Author)

Abu Dhabi University ( email )

PO Box 59911
Abu Dhabi, Abu Dhabi 59911
United Arab Emirates

Yarmouk University ( email )

irbid, 21110
Jordan

Ahmed Badawi

American University of the Middle East (AUM) ( email )

250 St.
Block 3, Building 1
Egaila
Kuwait

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