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Stock dividend puzzles in China

Author

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  • H. Anderson
  • J. Chi
  • C. Ing-aram
  • L. Liang

Abstract

We examine the stock dividend puzzle in China by analysing the market reaction, who pays more or solely stock dividends compared with cash dividends and why. In general, stock dividends send a positive market signal that 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 that have different incentives and trading ability 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.

Suggested Citation

  • H. Anderson & J. Chi & C. Ing-aram & L. Liang, 2011. "Stock dividend puzzles in China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 16(3), pages 422-447.
    • Handle: RePEc:taf:rjapxx:v:16:y:2011:i:3:p:422-447
    DOI: 10.1080/13547860.2011.589630
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    Cited by:

    1. Nhut H. Nguyen & David Y. Wang, 2013. "Stock dividends in China: signalling or liquidity explanations?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(2), pages 513-535, June.
    2. Deng, Lu & Li, Sifei & Liao, Mingqing, 2017. "Dividends and earnings quality: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 255-268.
    3. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    4. Li, Xindan & Geng, Ziyang & Subrahmanyam, Avanidhar & Yu, Honghai, 2017. "Do wealthy investors have an informational advantage? Evidence based on account classifications of individual investors," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 1-18.

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