Do dividends announcements signal future earnings changes for Jordanian firms?

Abstract

Purpose. This study examines the signalling hypothesis of dividends by testing empirically the market reaction to dividends announcements. Furthermore, this study examines the information content of dividends announcements with respect to future earnings changes for a sample of Jordanian industrial firms over the period 2009 to 2015.Design/methodology/approach. The authors mainly used the event study methodology (ESM) to examine the market reaction to dividend release announcements. The market model is used to generate the expected returns. Also, the t-test is used to examine the significance of the mean and cumulative abnormal return. Furthermore, a simultaneous-equation model developed by Nissim and Ziv (2001) and Grullon et al. (2005), applying the two-stage least squares (2SLS), is used to examine the relationship between dividends changes and future earnings changes. Findings.The results reveal consistency with the limited extant empirical evidence for developing markets and provide some new insights for Jordanian listed firms that support the signalling hypothesis. In applying the event study methodology, the information content of dividends shows that there is a significant positive market reaction to dividends announcements. The findings also present a strong relationship between dividends announcements and profitability in the year of announcements and the subsequent year, whereas this relationship does not exist in the second year. Our findings show that there is value-relevance for dividends, suggest that investors recognize the signalling purpose and discern that dividends announcements are useful in predicting favourable and unfavourable future earnings in the short run (the same year and subsequent year), and show also managers may use dividends to signal earnings prospects in anticipation of expected future market benefits.Originality/value. This paper contributes to the literature by providing a workable test for the dividend signalling hypothesis, applying a simultaneous-equation model that incorporates the market reaction to dividends announcements and future earnings changes. Moreover, this paper uses a recent data set of dividends announcements in Jordan. This study provides additional insight to support the signalling hypothesis in emerging markets. Overall, current and previous studies have focused typically on investigating dividend policy in developed markets, especially the US and European markets, whereas there has been limited analysis of dividends changes on earnings changes for developing markets.Practical Implications. The support of the signalling effect implies the existence of information symmetries, at least theoretically, between management and investors. These findings could have implications for Jordan's existing corporate governance practices and firms' disclosure environment.

Ownership structure’s effect on financial performance: An empirical analysis of Jordanian listed firms

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Faktor Determinan Struktur Modal Bank yang Terdaftar di Bursa Efek Indonesia Periode 2015-2019

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“…Merujuk pada tabel 3, rasio pembayaran dividen menunjukan nilai rata-rata 0,1595. Artinya, rasio pembayaran dividen adalah 15,95% atau tingkat pengembalian dividen cukup tinggi, dimana memberi sinyal bahwa bank tidak mengalami masalah likuiditas bahkan memberi sinyal prospek pendapatan yang lebih baik (Al-Shattarat et al, 2018). Nilai NDTS menunjukan nilai rata-rata sebesar 1,49%.…”