The role of dividends on equity valuation: Evidence from the gcc countries

Abstract

The paper extends the research on the ability of dividends to predict three equity valuation attributes: net earnings, cash flows from operations, and abnormal net earnings. Results from 264 companies that traded on the GCC Exchange during 2006–2016 provide the following insights. First, current dividends are value-relevant in predicting future net earnings, cash flows from operations, and abnormal net earnings. Second, current dividends are better predictors of these aspects over the short horizon than over the long horizon. Finally, in explaining the dividend policy, future net earnings have better incremental information than cash flows from operations and abnormal net earnings, and cash flows from operations have better incremental information than abnormal net earnings. These results have important implications for potential investors. To know the relationship between current dividends and future stock prices is considered important for Investors’ decisions in the GCC countries. This paper can be considered the first paper that studies the association between dividends and other three different equity valuation attributes as a comparative study of six emerging countries.