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

Posted: 30 Jul 2016

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)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2016

Abstract

This paper examines why firms choose to pay stock dividends. Using a sample of listed Chinese firms we find that older, more profitable firms with lower leverage, higher levels of retained earnings, private ownership prior to listing, that invest more in fixed assets and operate 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. These results suggest 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 use stock dividends to keep the firm’s stock price within its acceptable trading range.

Keywords: Dividend policy, stock dividend, stock split

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? (August 1, 2016). Australian Journal of Management, Vol. 41, No. 3, 2016. Available at SSRN: https://ssrn.com/abstract=2815880

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 (Contact Author)

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

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
277
PlumX Metrics