Dividends announcements, stock liquidity, and firm value: Does capital structure matter?

This study examines the joint effects of dividend announcements on firm value and stock liquidity, using capital structure as a moderating factor in these relationships. A Difference-in-Differences approach combined with Ordinary Least Squares regression was applied as a panel data analysis on a sample of 54 firms listed on both the Saudi Exchange (Tadawul) and Egyptian Exchange (EGX) from 2020 to 2023. Few firms were chosen because financial institutions were excluded from the research sample in both markets. Additionally, this period was selected to account for the effects of COVID-19 while excluding market performance data before the pandemic. Most actively traded firms from the main indices in both markets were selected. Daily abnormal return and abnormal volume were calculated over the entire 41-day event window. Furthermore, a Difference-in-Differences test was conducted for abnormal volumes. The impact of dividend announcements on both stock liquidity and firm value yields diverse conclusions. Findings reveal that dividend announcements significantly and positively affect stock prices and, consequently, firm value in the Saudi market, but have no significant impact on trading volume in the Egyptian market. Market efficiency substantially affects abnormal returns and firm value. According to the regression analysis, dividends did not significantly impact firm value as measured by Tobin’s Q but were found to negatively affect stock liquidity. However, the interaction between dividends and capital structure significantly and positively affects both stock liquidity and firm value in both markets.