DIVIDEND ANNOUNCEMENTS AND STOCK MARKET REACTIONS IN SAUDI ARABIA: EVIDENCE OF SECTORAL HETEROGENEITY FROM TADAWUL (2014–2023)

Abstract

This study investigates the impact of dividend announcements on stock market reactions in the Saudi Stock Exchange (Tadawul), with a particular focus on sectoral heterogeneity and firm-level financial determinants. The research aims to examine whether dividend announcements convey significant information to investors and how market responses vary across sectors and financial conditions. To achieve this objective, the study employs an event study methodology to measure short-term market reactions using abnormal returns (AR) and cumulative average abnormal returns (CAAR) over defined event windows. In addition, panel regression analysis is used to identify the influence of firm-specific financial variables, including Price Share Return (PSR), Free Cash Flow (FCF), Return on Equity (ROE), Return on Assets (ROA), Return on Investment (ROI), Return on Capital (ROC), and Return on Invested Capital (ROIC), on stock market reactions. The empirical analysis is based on data from listed Saudi companies over the period 2014–2023, capturing significant economic developments and regulatory reforms, including Capital Market Authority (CMA) initiatives and the COVID-19 period. The results indicate that dividend announcements generate statistically significant positive abnormal returns, supporting the dividend signaling hypothesis in the Saudi market. However, the magnitude and persistence of these reactions vary across sectors, with stronger responses observed in sectors characterized by stable cash flows and lower volatility. Furthermore, the findings reveal that firm-level financial performance plays a critical role in shaping investor reactions, suggesting that dividend announcements are interpreted in the context of overall financial strength. The study contributes to the literature by providing sector-level evidence from an emerging market context and highlighting the importance of financial fundamentals and market structure in dividend signaling. The results offer practical implications for investors, corporate managers, and policymakers by enhancing understanding of how dividend announcements influence market behavior and how sectoral and financial characteristics affect investor decision-making.