This chapter summarises the findings as they align with theory and as they contradict dividend irrelevance theory.
Discussions of dividend irrelevance start at the 1960s and extend into the mid-1970s with the proposition that dividend policy of a firm does not affect the value of the firm and therefore, investors place no emphasis on receiving the earnings as dividends or as capital gains. However, the irrelevancy approach soon meets with contention, later is confronted by evidence to the contrary, and finally, is stopped in its theoretical tracks. This dissertation sought to further defy irrelevancy theory: employing an event study to identify and calculate 90 dividend announcements and abnormal returns on investment (ROI) during the event period from July 2013to July 2014 and a regression analysis to calculate market behaviour around the ex-dividend events across 100 listed institutions on the Oman MSM covering the same period, this study found that the information content of dividends in this environment do indeed impact share prices of listed companies on the Muscat Securities Market (MSM). The study findings therefore align with the literature on dividend signalling theory, despite that, or regardless of the fact that dividend taxation is not a driving factor for information-rich dividend announcement content in Oman.
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In sum, this study arrived at two findings: first, the premise behind dividend signalling theory maintains that companies use dividends to convey information to the market; and this study finds that dividend information content in Oman aligns with signalling theory (as it counters irrelevancy theory,) as changes in dividends were found to be positively related to changes in future performances. In this way, and with support of the research literature, was the researcher supported in challenging irrelevancy theory and affirmed in an approach that might in turn inform future studies if not future dividend policy.
Second, where prevailing theory holds that the conditional high tax on dividends is what makes them informative, this study finds that in the absence of dividend taxation in Oman, there are other reasons dividends and their disclosed information prompt market responses accordingly: in an imperfect market scenario, whereby when the dividend announcement is found to be negative in any particular event period, as compared to the same period of a previous year, it is concluded that the Return on Assets (ROA) of the companies also decreases considerably, as compared to the same period from the previous year. Following an investigation which tested several hypotheses, the findings reflect both announcements of dividend increases and announcements of dividend decreases that are therefore less consistent with the tax-based signalling paradigm and more aligned with the direct interest by companies in dividend movement or change as it demonstrates management’s reporting clout and discretion due to the lack of constrictions/restrictions of taxation, reporting requisites, or accounting rules and regulations. That is, it was concluded that MSE investors perceive information content of dividend announcements to be a firm’s managerial prognostications—given the credibility, clout, and lack of restrictions otherwise imposed in tax-based market environments (such the United States and the New York Stock Exchange and the United Kingdom and the London Stock Exchange).
The event study approach was used with the understanding that an event study can have useful implications that inform dividend policy and at the same time can serve to answer the inquiry into market efficiency—or, to reinforce or negate market efficiency theory. However, despite the systematic and virtuous attempts to answer the research questions implicit in the problem statement posed earlier, some limitation remained: first, the extent to which this study is comprehensive is limited. That is, the event study used in this dissertation took into consideration cash dividends, but did not extend to specific types (of specific times) such as contemporaneous cash dividend announcements. As Khan points out, by excluding such specific types of announcements what nuances are missed can include that “…share prices may behave differently when such events are included in a sample” [emphasis added] (2011, p. 201). Second, the event study by nature proceeds with built-in assumptions, including that the target market under study is an efficient one, when, as Woon indicates, it is not always valid to make such an assumption (2005, p. 11). Moreover, in the case of the Omani market, studies conflict, with some finding some signs of market efficiency and others finding “inefficiency in the weak form” (Jawad 2010, p. 2).
However, efforts to make up for the limitations have been taken in this study. For instance, the emphasis on and investigations into market efficiency were accommodated by the literature on the efficient market hypothesis, so that such segments of this study are not superfluous but conducted in order to reconcile the limitation of not only a lack of comprehensiveness but a risk of unreliability of assumptions.
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Potential Future Research
While it is acknowledged by this researcher that the limitations are apparent in this study, it is also noted that no other study of this type had been done before this one. In addition, where this dissertation leaves off is where future studies might continue. Therefore, it is suggested that studies in the future continue to pursue evidence of dividend content impacting the market. Moreover, where only two studies have focussed on or included discussions of the unique tax-free environment that is Omen, future research might probe much more deeply into the literature that does exist on a) the tax-based dividend system that informs dividend announcement content and on b) the alternative reasons that in such environments as that of Oman, dividends and their disclosed information prompt market responses accordingly.
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