Stock Dividends in China: Signalling or Liquidity Explanations?

23 Pages Posted: 4 May 2013

See all articles by Nhut H. Nguyen

Nhut H. Nguyen

Auckland University of Technology

David Y. Wang

University of Auckland

Date Written: June 2013

Abstract

We test alternative hypotheses on a sample of Chinese stock dividends. The inverse Mills ratio, a signal about future performance, is positively related to announcement returns but does not predict higher future performance. Analysts do not revise their earnings forecasts after the announcement date. Our results are more consistent with liquidity‐based theories. We find that managers choose higher stock dividend ratios if share prices deviate more from the industry‐wide average. Increases in proportional spreads, depth, and the number of trades and decreases in average trade size, and price impact suggest greater participation of liquidity and small investors following stock dividends.

Keywords: Stock dividends, Signalling, Liquidity, Clientele, Trading range

JEL Classification: G14, G30

Suggested Citation

Nguyen, Nhut H. and Wang, David Y., Stock Dividends in China: Signalling or Liquidity Explanations? (June 2013). Accounting & Finance, Vol. 53, Issue 2, pp. 513-535, 2013, Available at SSRN: https://ssrn.com/abstract=2260632 or http://dx.doi.org/10.1111/j.1467-629X.2012.00468.x

Nhut H. Nguyen

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

David Y. Wang

University of Auckland ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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