Dividend policy and the downside risk in stock prices: evidence from the MENA region

Omar Farooq, Harit Satt, Fatima Zahra Bendriouch and Diae Lamiri

Journal of Risk Finance, 2021, vol. 22, issue 3/4, 261-278

Abstract: Purpose - The aim of this paper is to document the impact of dividend policies on the downside risk in stock prices. Design/methodology/approach - The authors use the data for non-financial firms from the MENA region to test our arguments by estimating the pooled OLS regressions. The data cover the period between 2010 and 2018. Findings - This paper shows that firms with higher dividend payouts have significantly lower downside risk in their stock prices than the other firms. The findings of this paper are robust across various proxies of dividend policy and across various sub-samples. This paper contends that lower downside risk associated with the stock prices of firms paying high dividends is due to the fact that these firms have lower agency problems. Lower agency problems reduce the downside risk in stock prices. Originality/value - To the best of the authors’ knowledge, most of the prior research (covering the MENA region) overlooks the impact of dividend policy on the downside risk in stock prices. This paper fills this gap by documenting the relationship between the two by using the data for firms from the MENA region.

Keywords: Maximum drawdown; Dividend policy; Downside risk; Emerging markets; Agency problems (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-10-2020-0226

DOI: 10.1108/JRF-10-2020-0226

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