1. Research Problem:
Capital investment decisions are considered strategic because they relate to achieving a company's long-term objectives and involve several essential steps to evaluate different investment alternatives in a way that maximizes returns while maintaining an acceptable level of risk. Investment decisions are deemed efficient when the actual investment in a given year matches the expected investment for that year, determined based on the company's available growth opportunities. However, this situation rarely occurs in practice. Rather, there is usually an increase in investment (overinvestment) or a decrease in investment (underinvestment) than expected, which represents the inefficiency of investment decisions (investment inefficiency).
Stock liquidity is considered one of the most important factors influencing the improvement of investment decision efficiency. Companies with higher stock liquidity may have greater ability to obtain financing, whether through loans or capital increases. In this context, some studies have indicated a positive relationship between stock liquidity and investment decision efficiency, while other studies have confirmed that the relationship between stock liquidity and investment decision efficiency is negative.
The dividend distribution decision is one of the most important financial decisions for any organization, as distributing returns to common shareholders represents a key objective of financial decisions within the organization, impacting its investment and financing plans. Although the study of the impact of dividend distributions on investment decision efficiency has attracted researchers' interest, there is still debate on this issue. Some studies have indicated a positive relationship between dividend distributions and investment decision efficiency, while other studies have found no relationship between them. Additionally, some studies have suggested a negative relationship between dividend distributions and investment decision efficiency.
Some studies have found a reverse impact of dividend distributions on stock liquidity, while many studies have concluded that there is a positive impact between them. Additionally, some studies have found no impact of dividend distributions on stock liquidity.
Given the variation in the results of previous studies on the impact of dividend distributions on stock liquidity, the effect of dividend distributions on investment decision efficiency, and the influence of stock liquidity on investment decision efficiency—along with the scarcity of prior research on this topic in the Egyptian context, specifically applied to companies listed on the Egyptian Stock Exchange - to the best of the researchers' knowledge- and most of the studies were conducted in foreign environments.
In light of this, the research problem can be formulated by addressing the following questions:
- What is the impact of dividend distributions on stock liquidity?
- What is the impact of dividend distributions on investment decision efficiency?
- What is the impact of stock liquidity on investment decision efficiency?
- What is the impact of dividend distributions on investment decision efficiency through stock liquidity?
2. Research objectives:
In light of the research problem and questions presented, the research objectives can be outlined as follows:
- Examining the impact of dividend distributions on stock liquidity.
- Investigating the impact of dividend distributions on investment decision efficiency.
- Analyzing the impact of stock liquidity on investment decision efficiency.
- Exploring the impact of dividend distributions on investment decision efficiency through stock liquidity.
3. Research importance:
The importance of this research lies in providing empirical evidence from the Egyptian context regarding the impact of dividend distributions on stock liquidity and its reflection on investment decision efficiency. The findings of this study may be of interest to stakeholders such as boards of directors and investors. Understanding the determinants of stock liquidity, particularly dividend distributions, can offer valuable insights for decision-making by financial report users in general and investors in particular.
4.Scope of the research:
This research is limited to examining the impact of dividend distributions on stock liquidity and its reflection on investment decision efficiency, focusing on companies listed on the EGX100 index of the Egyptian Stock Exchange during the period from 2015 to 2022. Financial companies and banks are excluded from the study due to their unique nature, as they are subject to different legal, regulatory, and governance mechanisms.
5.Research Hypotheses:
In light of the research objectives and questions, the research hypotheses are formulated as follows:
H1: There is no statistically significant relationship between dividend distributions and stock liquidity.
H2: There is no statistically significant relationship between dividend distributions and investment decision efficiency.
H 3: There is no statistically significant relationship between stock liquidity and investment decision efficiency.
H 4: There is no statistically significant impact of dividend distributions on investment decision efficiency through stock liquidity.
6. Research Plan:
Based on the importance of the research, to achieve its objectives and answer its research questions, the research was formulated as follows:
The first section presents the general framework of the research. The second section addresses the theoretical and conceptual framework of the study. The third section examines previous studies and the development of the research hypotheses. The fourth section addresses the design of the applied study and the construction of study models. The fifth section presents the analysis and discussion of the results of the applied study and the testing of the hypotheses. The sixth section addresses the results, recommendations, and future research directions.
7. Results:
The key findings derived from the theoretical and empirical study, as well as the analysis of relevant previous studies, are as follows:
-There is a significant adverse impact of dividend distributions on stock liquidity using both PCSE and Robust-OLS methods. This indicates that as the dividend payout ratio increases, the stock becomes more attractive to its holders, leading to a longer holding period by investors. Consequently, the supply of the stock decreases, reducing its turnover rate and, in turn, lowering its liquidity.
-There is a significant positive impact of the previous year’s dividend distributions on the current efficiency of investment decisions, measured using the Biddle et al. (2009) and Chen et al. (2011) indices, based on PCSE and Robust-OLS methods. Given the low efficiency of the Egyptian stock market, distributing any available cash to shareholders is preferable rather than retaining it, as this minimizes the chances of managerial misuse.
- There is a significant adverse impact of the previous year’s stock liquidity on the current efficiency of investment decisions, measured using the Biddle et al. (2009) and Chen et al. (2011) indices, based on PCSE and Robust-OLS methods. This can be explained by the fact that companies with higher stock liquidity may have greater access to financing through loans or capital increases. However, this increased ability to attract funding may lead to suboptimal investment decisions.
-There is a statistically significant impact of dividend distributions on investment decision efficiency through stock liquidity.
8- Recommendations:
In light of the findings, the researchers recommend the following:
- Company management should carefully evaluate their dividend distribution decisions, as they play a crucial role in influencing stock liquidity.
- Investment projects should be thoroughly assessed to avoid overinvestment, which results from accepting projects that do not achieve optimal returns.
- Companies should avoid missing investment opportunities where returns exceed costs by utilizing retained earnings for financing, especially in cases where external financing is difficult to obtain.
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