Wasim Khalil Al-Shattarat, Basiem Khalil Al-Shattarat and Ruba Hamed
This study aims to examine the signalling hypothesis of dividends by testing empirically the market reaction to dividends announcements. Furthermore, this study aims to examine…
Abstract
Purpose
This study aims to examine the signalling hypothesis of dividends by testing empirically the market reaction to dividends announcements. Furthermore, this study aims to examine the information content of dividends announcements with respect to future earnings changes for a sample of Jordanian industrial firms over the period 2009 to 2015.
Design/methodology/approach
The authors mainly used the event study methodology to examine the market reaction to dividend release announcements. The market model is used to generate the expected returns. Also, the t-test is used to examine the significance of the mean and cumulative abnormal return. Furthermore, a simultaneous-equation model developed by Nissim and Ziv (2001) and Grullon et al. (2005), applying the two-stage least squares (2SLS), is used to examine the relationship between dividends changes and future earnings changes.
Findings
The results reveal consistency with the limited extant empirical evidence for developing markets and provide some new insights for Jordanian listed firms that support the signalling hypothesis. In applying the event study methodology, the information content of dividends shows that there is a significant positive market reaction to dividends announcements. The study’s findings also present a strong relationship between dividends announcements and profitability in the year of announcements and the subsequent year, whereas this relationship does not exist in the second year. The findings show that there is value-relevance for dividends, suggest that investors recognize the signalling purpose and discern that dividends announcements are useful in predicting favourable and unfavourable future earnings in the short run (the same year and subsequent year) and also show that managers may use dividends to signal earnings prospects in anticipation of expected future market benefits.
Research limitations/implications
The findings of this study could have significant policy implications. The support of a signalling effect implies an existence of information symmetry, at least theoretically, between management and investors. On the other side, this study could not reflect the levels of inside ownership or the existence of signalling substitutes even though these findings could have implications for Jordan’s existing corporate governance practices and firms’ disclosure environment. The results are specific to Jordan, but they do shed light on the generality of the rival models of dividend policy. Many of the structural characteristics of the capital market in Jordan are, however, also present in other emerging markets. The results from this study may, therefore, help provide the basis for comparative research both in the region and in other emerging markets.
Practical implications
The support of the signalling effect implies the existence of information symmetries, at least theoretically, between management and investors. These findings could have implications for Jordan’s existing corporate governance practices and firms’ disclosure environment.
Originality/value
This paper contributes to the literature by providing a workable test for the dividend signalling hypothesis, applying a simultaneous-equation model that incorporates the market reaction to dividends announcements and future earnings changes. Moreover, this paper uses a recent data set of dividends announcements in Jordan. This study provides additional insight to support the signalling hypothesis in emerging markets. Overall, current and previous studies have focused typically on investigating dividend policy in developed markets, especially the US and European markets, although there has been limited analysis of dividends changes on earnings changes for developing markets.
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Ruba Hamed, Wasim Al-Shattarat and Basiem Al-Shattarat
This study aims to investigate the association between corporate social responsibility (CSR) reporting and earnings management (EM) activities following the Companies Act 2006…
Abstract
Purpose
This study aims to investigate the association between corporate social responsibility (CSR) reporting and earnings management (EM) activities following the Companies Act 2006 Regulation 2013. Further, it examines the moderating role of business strategy in the association between mandatory CSR reporting and EM practices.
Design/methodology/approach
The study uses a sample of UK-listed companies on the London Stock Exchange from 2006 to 2020. It uses a quantitative approach to examine the main hypotheses.
Findings
The study finds that the new regulation of CSR reporting has increased the tendency of managers to act opportunistically through real earnings management (REM). Moreover, it finds that the defender business strategy negatively affects the association between mandated CSR reporting and REM but is positively related to accrual earnings management (AEM). Moreover, the results demonstrate that the prospector business strategy does not moderate the association between mandatory CSR reporting and EM practices.
Practical implications
Policymakers should consider business strategy when designing CSR regulations to prevent unintended consequences, introducing safeguards like stricter disclosure requirements and enhanced auditing standards. For investors and auditors, understanding the factors influencing EM helps make informed decisions and conduct rigorous audits, especially for companies with high CSR reporting levels.
Originality/value
This study addresses a significant gap in the literature concerning the impact of introducing new CSR legislation (The Companies Act 2006) on EM practices. It enhances our understanding of the role that CSR reporting and functions play in capital markets. Furthermore, it contributes to the CSR literature by highlighting how business strategy influences the relationship between CSR reporting and EM practices.
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Ruba Hamed, Jan Smolarski, Wasim Al-Shattarat and Basiem Al-Shattarat
This study aims to investigates the impact of newly implemented regulations on corporate social responsibility (CSR) reporting on company performance. It also seeks to understand…
Abstract
Purpose
This study aims to investigates the impact of newly implemented regulations on corporate social responsibility (CSR) reporting on company performance. It also seeks to understand the value relevance of CSR reporting after implementing the regulation and how strategic emphasis can either mitigate or enhance these relationships.
Design/methodology/approach
The study uses a sample of UK-listed companies on the London Stock Exchange, specifically those included in the FTSE All-Share index, from 2006 to 2020. The final data set consists of 2,385 firm-year observations. This study used a quantitative approach to examine the main hypotheses.
Findings
The findings indicate that mandating CSR reporting has a beneficial influence on a company’s future performance. Furthermore, mandatory CSR reporting enhances the performance of the company when the company’s strategy emphasises value appropriation rather than value creation. In addition, mandatory CSR reporting has value relevance as it provides valuable information to evaluate the market value of companies, and this link strengthens when a company enhances its strategic emphasis.
Practical implications
The findings of this study indicate that policymakers should enhance CSR regulations to motivate firms to strategically integrate CSR, thereby boosting both financial and social value. Implementing standardised reporting metrics would enhance transparency, while companies that view CSR as a strategic asset may experience increased market value and greater stakeholder trust.
Social implications
Examining mandatory CSR promotes transparency and stakeholder engagement, potentially driving innovation and informing effective CSR policies.
Originality/value
This study fills several gaps in the literature about mandated CSR reporting in a developed market, how a company’s strategic approach to mandatory CSR reporting can influence its financial performance and stock price, and whether a company’s exposure to its customer base affects mandatory CSR reporting.