Value Relevance of Earnings, Book Value and Dividends in an Emerging Capital Market: Kuwait Evidence

Posted: 22 Jan 2018

See all articles by Osama Musa Al-Hares

Osama Musa Al-Hares

Gulf University for Science and Technology (GUST)

Naser M. Abughazaleh

Gulf University for Science and Technology (GUST)

Ayman E. Haddad

American University of Kuwait

Date Written: December 14, 2012

Abstract

This study examines the value relevance of book value, earnings and dividends for a sample of all non-financial firms listed on the Kuwait Stock Exchange (KSE) over the period 2003–2009. After controlling for the impact of the global financial crisis, empirical results provide evidence on the value relevance of book value and earnings in the KSE. The results indicate that dividends are not a value-relevant in the presence of earnings in the valuation model. However, when dividends are used as a substitute for earnings they become value-relevant. The explanatory power of the model including both book value and earnings is almost indistinguishable from that of book value and dividends. Furthermore, splitting earnings into dividends declared (or paid) and earnings retained results in each of the two variables becoming value-relevant. The average dividend pay-out ratio tends to increase over time, indicating that dividend policies do matter in the KSE and that dividends in Kuwait are used to boost investors' confidence and support share price, noticeably during the global financial crisis period.

Keywords: Gulf Cooperation Council (GCC), Market-Based Accounting Research (MBAR), Value Relevance

JEL Classification: M41, M44, G12, G32

Suggested Citation

Al-Hares, Osama Musa and Abughazaleh, Naser M. and Haddad, Ayman E., Value Relevance of Earnings, Book Value and Dividends in an Emerging Capital Market: Kuwait Evidence (December 14, 2012). Global Finance Journal, Vol. 23, No. 3, 2012, Available at SSRN: https://ssrn.com/abstract=3101654

Osama Musa Al-Hares (Contact Author)

Gulf University for Science and Technology (GUST) ( email )

Masjid Al Aqsa Street
Mubarak Al-Abdullah
Kuwait

Naser M. Abughazaleh

Gulf University for Science and Technology (GUST) ( email )

Masjid Al Aqsa Street
Mubarak Al-Abdullah
Kuwait

Ayman E. Haddad

American University of Kuwait ( email )

Department of Accounting
Kuwait, 13034
Kuwait

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