Return-Based Indicators and Investor Reaction to Dividends: A Sectoral Panel Study of the Saudi Market

Abstract

This study investigates the stock market reaction to dividend announcements in Saudi Arabia, with particular emphasis on return-based indicators and sectoral differences. Dividend announcements represent one of the most important corporate signals of financial strength, especially in emerging markets characterized by high information asymmetry and a strong presence of retail investors. Using a dataset of sixty-eight firms listed on the Saudi Stock Exchange over the period 2014 to 2023, the research applies a dual methodology that combines event study analysis with sectoral panel regressions. The findings confirm that dividend announcements generate positive abnormal returns, with reactions persisting beyond the immediate announcement day, indicating that information is incorporated gradually rather than instantaneously. Stronger market responses were observed in stable and regulated industries such as banking, telecommunications, and energy, while weaker reactions occurred in insurance and consumer services. Firm-level financial indicators, including return on equity, dividend yield, and price share return, emerged as critical determinants of investor response, reinforcing the explanatory power of classical dividend theories. At the same time, the findings emphasize that market interpretation is highly dependent on sectoral context, suggesting that dividend announcements should be evaluated within the broader structure of industry dynamics, profitability, and liquidity.