An Empirical Investigation of Dividend Payment Decisions of Companies Listed on the Saudi Stock Exchange (Tadāwul)

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Abstract This study investigates the dividend payment decisions of companies listed on the Saudi Stock Exchange. The attitude of company executives and investors to dividends in Saudi Arabia has not been extensively reported in the academic literature, and, although a number of studies on the topic have been published, the reported findings provide only a partial view as they are based on small samples, and the perspectives adopted limited. The Saudi economy has changed significantly since the publication in 2016 of the policy document, Vision 2030, which signalled the introduction of liberal reforms in Saudi society, the adoption of a taxation regime, and the economy’s opening to international investment. In this new environment, the attitudes of company managers and investors to dividend payments may be important for policymakers as they seek to encourage Saudi companies to expand and attract international investors. The study reports findings from three separate but linked empirical approaches. First, a questionnaire was distributed to senior financial managers seeking their views on dividend policy issues including the factors that determine the setting of dividend policy for their companies, their views on the role of dividend signals, and taxation. Second, in-depth semi-structured interviews were conducted with twenty-one of financial executive managers. Third, an event study examined the market reaction to dividends. What emerged from the empirical work is that Saudi managers appear to view the dividend decision as an important policy issue for their companies. Investors appear to rely on the dividend announcement as conveying important information that may support the view that for Saudi listed companies’ dividends may affect firm valuation. The findings appear to be consistent with published findings of dividend studies of Western markets and represent a significant contribution to the dividend literature for emerging markets.