Frequency and Motives for Stock Dividends in a Unique Environment

We investigate the possible differences in the information content of stock dividends between firms that distribute stock dividends frequently (frequent distributors) and firms that distribute stock dividends infrequently (infrequent distributors) using a unique data set from Oman where the market microstructure frictions are either absent or limited. We find that infrequent stock dividend distributors have higher postdistribution operating performance relative to frequent distributors. We also find that the illiquidity measure is significantly related to the announcement effect only for frequent stock dividend distributors, whereas short-term performance is significantly related to the announcement effect only for infrequent distributors. Our findings indicate that infrequent stock dividends are used mainly to convey favorable private information about the firms' future prospects, and frequent stock dividends are used to reduce stock price to an optimal trading range in order to improve trading liquidity.