Title

Stock market reactions to dividend and earnings announcements in a tax-free environment

Author First name, Last name, Institution

Kienpin Tee, Zayed University
Abiot M. Tessema, Zayed University

Document Type

Article

Source of Publication

International Finance

Publication Date

1-1-2019

Abstract

© 2018 John Wiley & Sons Ltd This paper investigates the stock market reactions to dividend and earnings announcements for firms listed in the United Arab Emirates (UAE), where there is no tax on dividend income or capital gains. This tax-free setting allows us to examine the tax-based signalling hypothesis, which holds that a change in dividends does not offer important information when dividend income is not taxed. Contrary to the tax-based signalling theory, we find a positive (negative) price reaction to dividend initiations and increases (dividend omissions and decreases). We further examine the signalling hypothesis, which proposes that dividends convey information about firms' future earnings. We find that the size of the dividend increases or decreases does not predict future earnings.

ISSN

1367-0271

Publisher

Blackwell Publishing Ltd

Volume

22

Issue

2

First Page

241

Last Page

259

Disciplines

Business

Scopus ID

85055527395

Indexed in Scopus

yes

Open Access

no

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