What do dividend changes reveal? Theory and evidence from a unique environment

Abdullah AlGhazali; Khamis Hamed  Al-Yahyaee; Richard John Fairchild; Yilmaz Guney

doi:10.1007/s11156-023-01211-x

What do dividend changes reveal? Theory and evidence from a unique environment

Abdullah AlGhazali, Khamis Hamed Al-Yahyaee, Richard John Fairchild, Yilmaz Guney

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6 Citations (Scopus)

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Abstract

We explore the reasons behind corporate dividend changes and factors driving those changes during 2001-2021 in Oman, as a unique environment. The implications of our paper contrast with the relevant existing literature which demonstrates a positive correlation between dividends and stock prices in Oman, in support of the signaling theory. Employing multiple methods and after controlling for the nonlinearity in the profitability process, we find virtually no evidence for the signaling theory of dividends for dividend reductions, in terms of future earnings. Furthermore, our analysis affirms the importance of current profitability in influencing the magnitude of and the propensity to change (increase or decrease) dividends in listed Omani firms. We also find that the catering theory of dividends does not have any explanatory power on dividend changes. Further, firms’ life-cycle status and real investments have been found to significantly affect the decision to change dividends. Our results, which depart from the findings in the conventional literature, can be attributed to the distinct institutional features in Oman. Our game-theoretic model of dividend signaling/dividend catering provides some explanations.

Original language	English
Pages (from-to)	499-552
Number of pages	54
Journal	Review of Quantitative Finance and Accounting
Volume	62
Issue number	2
Early online date	4 Nov 2023
DOIs	https://doi.org/10.1007/s11156-023-01211-x
Publication status	Published - Feb 2024

Bibliographical note

This article is licensed under a Creative Commons Attribution 4.0 International
License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

Keywords

Catering theory
Dividend
Earnings
Investments
Life cycle theory
Oman
Profitability
Tax-based signaling theory

ASJC Scopus subject areas

Accounting
General Business,Management and Accounting
Finance

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10.1007/s11156-023-01211-xLicence: CC BY

PublishedFinal published version, 1.45 MBLicence: CC BY

Cite this

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What do dividend changes reveal? Theory and evidence from a unique environment

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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