The information content of cash dividend announcements in a unique environment

• Published in: Journal of banking & finance Vol. 35; no. 3; pp. 606 - 612
• Main Authors: Al-Yahyaee, Khamis H., Pham, Toan M., Walter, Terry S.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2011; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Banking & Finance
• Subjects: Capital gains; Capital gains tax; Corporate finance; Dividend policy; Dividends; Dividends Tax effects Information content Price reaction; Financial analysis; Information; Information content; Oman; Price reaction; Stock prices; Studies; Tax effects; Taxation; Oman; Information content; Price reaction; Dividends; G14; Tax effects; D82
• ISSN: 0378-4266; 1872-6372
• DOI: 10.1016/j.jbankfin.2010.03.004

Due to its distinctive institutional background, Oman offers a valuable opportunity to examine stock price reactions to dividend announcements. In Oman, (1) there are no taxes on dividends and capital gains, (2) there is a high concentration of share ownership, (3) there is low corporate transparency, and (4) firms frequently change their dividends. Our results show that announcements of dividend increases are associated with increased stock prices, while announcements of dividend decreases cause decreases in stock prices. Firms that do not change their dividends experience insignificant negative returns. These results contradict tax-based signaling models, which argue that higher taxes on dividends relative to capital gains are a necessary condition for dividends to be informative.