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Stock Dividend Puzzles in China

49 Pages Posted: 15 Jul 2010  

Hamish D. Anderson

Massey University - School of Economics and Finance

Jing Chi

Massey University - School of Economics and Finance

Chayot Ing-aram

Massey University - School of Economics and Finance

Lu Liang

Massey University - School of Economics and Finance

Abstract

We examine the stock dividend puzzle in China during 1992-2008 by analysing the market reaction, who pays more or solely stock dividends compared to cash dividends and why. In general, stock dividends send a positive market signal which is stronger for larger stock dividends and simultaneous cash dividend declarations. Companies take advantage of this positive announcement reaction when they are cash poor, or have low profitability. In addition, when the overall market underperforms, cash dividends decrease while stock dividends increase significantly. Non-tradable shares are owned by two distinct groups who have different incentives and therefore are likely to prefer different dividend policies. Consistent with this, we find evidence that state-owned shareholders prefer cash dividends, while legal-person shareholders prefer stock dividends.

Keywords: Stock Dividends, China

JEL Classification: G35

Suggested Citation

Anderson, Hamish D. and Chi, Jing and Ing-aram, Chayot and Liang, Lu, Stock Dividend Puzzles in China. Massey U. College of Business Research Paper No. 16. Available at SSRN: https://ssrn.com/abstract=1640219 or http://dx.doi.org/10.2139/ssrn.1640219

Hamish D. Anderson (Contact Author)

Massey University - School of Economics and Finance ( email )

New Zealand

Jing Chi

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North,, 4442
New Zealand
+64 6 3569099 Ext. 84048 (Phone)
+64 6 350 5651 (Fax)

Chayot Ing-aram

Massey University - School of Economics and Finance ( email )

New Zealand

Lu Liang

Massey University - School of Economics and Finance ( email )

New Zealand

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