Razaz Felimban, Christos Floros and Ann-Ngoc Nguyen
The purpose of this paper is to investigate the stock market response to dividend announcements in high growth emerging markets of Gulf countries.
Abstract
Purpose
The purpose of this paper is to investigate the stock market response to dividend announcements in high growth emerging markets of Gulf countries.
Design/methodology/approach
The sample includes 1,092 dividend announcements from 299 listed firms over the period 2010-2015.
Findings
In the environment where there is an absence of capital gain and income tax, the authors find some evidence for the stock price reaction that partly supports the signaling hypothesis. The findings show that the Gulf Cooperation Council (GCC) market is inefficient because of the leakage information before the announcement in bad news, and the delay of share price adjustment in good news. In addition, the authors report significant trading volume (TV) reaction in all the three announcements clusters, where dividends increase, decrease, and are constant, lending support to the hypothesis that the dividend change announcements have an impact on the TV response due to different investors’ preferences.
Originality/value
This is the first empirical paper on market reaction in share price and TV around dividend announcement using data for the majority of GCC countries.
Details
Keywords
Razaz Felimban, Sina Badreddine and Christos Floros
This paper examines the dividend smoothing (DS) behaviour in the Gulf Cooperation Council (GCC) countries in emerging markets where the response to news and the economic…
Abstract
Purpose
This paper examines the dividend smoothing (DS) behaviour in the Gulf Cooperation Council (GCC) countries in emerging markets where the response to news and the economic environment are different from those of developed countries.
Design/methodology/approach
The authors examine the effect of share price informativeness on DS in the GCC markets using unbalanced panel data for a sample of 628 GCC-listed firms during 1994–2016. For the regression analysis, the hypotheses are tested using panel regressions and generalised method of moments (GMM) estimation.
Findings
First, the Lintner model shows that the DS degree in GCC firms is comparable to that of a developed market. Second, and importantly, the results reveal that the DS in GCC firms is sensitive to private information of share prices. Finally, the findings indicate that information asymmetry (IA) and agency-based models affect the tendency to smooth dividends in the GCC markets.
Originality/value
This study is the first study to measure the degree of DS using data for all GCC countries. The authors also identify other determinants of DS behaviour and test the agency and IA explanations for DS in GCC-listed firms. The findings are highly recommended to financial managers and analysts dealing with the GCC markets. This study helps financial analysts to use the share price informativeness as an indicator for the presence of the IA. The study results are beneficial to researchers in understanding the relationship between DS and share price informativeness.