The impact of dividend announcement on firms’ value in the Saudi Arabian market

Abstract

Dividend payment policy had been described as a dividend puzzle by Black (1974) as this subject is considered to be one of the unsolved issues in the field of finance. The aim of this dissertation is to examine the impact of dividend announcement on firm value in the Saudi stock market. In general, the majority of existing studies examining the impact of dividend announcement on firm value have tested the impact on developed capital markets. However, very few studies focus on emerging markets like the Saudi stock market. This has been a motive to study the impact of dividend announcements in this dissertation. The Saudi stock market has unique features differentiating it from any developed market, such as the firms’ size, the ownership structure, and a non-taxable market. This makes the Saudi stock market an interesting environment to study. For the purpose of this dissertation, a quantitative method represented as an event study was employed based on the market model to examine the effect of dividend payment policy on firms’ value in the Saudi stock market. The sample examined in this study included 122 dividend announcements over the period 2008-2018, with a 21-day event window to test the significance of the abnormal returns around that time period. The findings of this dissertation are that the Saudi stock market reacted insignificantly to all the dividend announcements examined in this period, which means the announcements do not convey any information to investors. These findings are in line with a few number of studies examining the Saudi stock market. As a result, according to this dissertation, the Saudi stock market is efficient by adjusting immediately to all available information in the market.