Determinants of Dividend Policy in Chinese Firms: Cash Versus Stock Dividends

43 Pages Posted: 27 Sep 2009

See all articles by Xi He

Xi He

Australian National University, Research School of Finance, Actuarial Studies and Applied Statistics

Mingsheng Li

Bowling Green State University - College of Business Administration

Jing Shi

Macquarie University

Garry J. Twite

University of Melbourne - Department of Finance; University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Date Written: September 27, 2009

Abstract

The Chinese market is characterized by state-controlled and closely held firms as well as significant differences in economic development and legal structures at the provincial level and corporate regulations that require firms seeking external financing to show a history of dividend payment. Using a sample of listed Chinese firms, we investigate the likelihood of paying dividends, different forms of dividends and market reactions to various dividend announcements. We find that profitable, low leverage, high cash holding, stronger shareholder protection firms, and those firms with state ownership prior to listing and undertaking subsequent equity offerings are more likely to pay dividends and cash dividends, in particular. Firms appear to cater to investor demands in setting dividend policy; hence firms with a large proportion of non-tradable shares are more likely to pay cash dividends. Consistent with the use of stock dividends to attract the attention of analysts, we also find that growing firms with high levels of retained earnings and greater investment in fixed assets pay stock dividends and these firms’ dividend announcements are associated with significant positive market reactions and increased analyst following.

Keywords: dividend policy, cash dividend, stock dividend, China, emerging markets

JEL Classification: G32, G35

Suggested Citation

He, Xi and Li, Mingsheng and Shi, Jing and Twite, Garry J., Determinants of Dividend Policy in Chinese Firms: Cash Versus Stock Dividends (September 27, 2009). Available at SSRN: https://ssrn.com/abstract=1479053 or http://dx.doi.org/10.2139/ssrn.1479053

Xi He

Australian National University, Research School of Finance, Actuarial Studies and Applied Statistics ( email )

Canberra, Australian Capital Territory 2601
Australia

Mingsheng Li

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Garry J. Twite (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

University of Melbourne - Faculty of Business and Economics ( email )

Department of Finance
Melbourne, VIC 3010
Australia
+61 3 90356172 (Phone)

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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