Abstract

http://ssrn.com/abstract=2208943
 


 



Why Do Firms Pay Stock Dividends: Is it Just a Stock Split?


Xi He


Australian National University, Research School of Finance, Actuarial Studies and Applied Statistics; Financial Research Network (FIRN)

Mingsheng Li


Bowling Green State University - College of Business Administration

Jing Shi


RMIT University - School of Economics, Finance and Marketing; Financial Research Network (FIRN)

Garry J. Twite


University of Texas at Austin - Department of Finance

December 18, 2012


Abstract:     
This paper examines why firms choose to pay stock dividends. Using a sample of listed Chinese firms, we find that younger, more profitable firms, with lower leverage, high levels of retained earnings, private ownership prior to listing, investing more in fixed assets and operating in regions with lower shareholder protection are more likely to pay stock dividends. Consistent with stock dividends substituting for stock splits, our evidence indicates that the initiation of a stock dividend is associated with a significant positive market reaction and increased analyst following, suggesting that firms use stock dividends to attract analysts’ attention. In addition, the positive announcement effect for stock dividends increases with the size of the split factor, suggesting that management making use of stock dividends to keep the firm’s stock price within its acceptable trading range.

Number of Pages in PDF File: 48

Keywords: dividend policy, stock dividend, cash dividend, signaling, catering, China

JEL Classification: G32, G35

working papers series


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Date posted: January 31, 2013  

Suggested Citation

He, Xi and Li, Mingsheng and Shi, Jing and Twite, Garry J., Why Do Firms Pay Stock Dividends: Is it Just a Stock Split? (December 18, 2012). Available at SSRN: http://ssrn.com/abstract=2208943 or http://dx.doi.org/10.2139/ssrn.2208943

Contact Information

Xi He
Australian National University, Research School of Finance, Actuarial Studies and Applied Statistics ( email )
Canberra, Australian Capital Territory 2601
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Mingsheng Li
Bowling Green State University - College of Business Administration ( email )
Bowling Green, OH 43403
United States
Jing Shi
RMIT University - School of Economics, Finance and Marketing ( email )
Building 80
445 Swanston Street
Melbourne VIC, Melbourne 3000
Australia
Financial Research Network (FIRN) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Garry J. Twite (Contact Author)
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
(512) 471 5682 (Phone)
Feedback to SSRN


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