Stock Versus Cash Dividends: Signaling or Catering

49 Pages Posted: 15 Mar 2011 Last revised: 16 Jun 2012

See all articles by Garry J. Twite

Garry J. Twite

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

Jing Shi

Macquarie University

Xi He

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

Mingsheng Li

Bowling Green State University - College of Business Administration

Date Written: January 16, 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 and investing more in fixed assets are more likely to pay stock dividends. Our evidence indicates that the initiation of a stock dividend is associated with a significant positive market reaction and increased analyst following, consistent with firms using stock dividends to attract analysts’ attention. In contrast, firms with non-tradable shares are more likely to pay cash dividends, catering to investor demands.

Keywords: Dividend policy, stock dividend, cash dividend, signalling, China

JEL Classification: G32, G35

Suggested Citation

Twite, Garry J. and Shi, Jing and He, Xi and Li, Mingsheng, Stock Versus Cash Dividends: Signaling or Catering (January 16, 2012). Available at SSRN: https://ssrn.com/abstract=1786272 or http://dx.doi.org/10.2139/ssrn.1786272

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

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

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

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