Accounting Information and Stock Price Dynamics in Saudi Arabia: Evidence from a Markov-Switching Regression Model

Objectives This study investigates the impact of accounting information on stock prices in Saudi Arabia and examines whether the relationship is linear or nonlinear using a Markov-Switching Dynamic Regression (MSDR) model. Material and Methods Annual data covering the period 1994–2021 were collected from the World Bank Development Indicators and Saudi capital market sources. The study employed descriptive statistics, unit root tests, linearity tests, and the MSDR model to analyse the relationship between stock prices and accounting information variables. Results The findings indicate that the relationship between accounting information and stock prices is nonlinear. Stock market return, value of shares traded, and market capitalisation positively affect stock prices, whereas the number of shares traded exerts a negative effect. Stock market turnover ratio was not statistically significant. The MSDR model identified two market regimes: a more stable low-volatility regime and a high-volatility regime. The market remained in the low-volatility regime for most of the study period. Conclusion Accounting information plays a significant role in explaining stock price movements in Saudi Arabia. The nonlinear nature of the relationship suggests that regime-dependent modelling provides more accurate insights than conventional linear approaches. The findings offer useful implications for investors, policymakers, and market regulators.