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

Kienpin Tee and Abiot M. Tessema

International Finance, 2019, vol. 22, issue 2, 241-259

Abstract: 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.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:22:y:2019:i:2:p:241-259

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