Wealth effects of dividend regulation: Evidence from China

Chao Kevin Li

Australian Journal of Management, 2021, vol. 46, issue 2, 197-223

Abstract: By exploring a natural experiment where the Chinese regulatory body introduced a dividend regulatory change in 2012, this article investigates the wealth effects of dividend regulation which increases firms’ dividends. I find that firms’ share price reacted positively (negatively) to regulatory events increasing (decreasing) investors’ expectation of dividends. The effects are more pronounced for firms with low dividends or domiciled in weak legal environments, robust to different research designs. The findings are consistent with the notion that low dividends in China are a manifestation of implicit contract failure. Dividend regulation provides remedies to low investor protection arising from weak legal environments. JEL Classification: G14, G35, G38, K22

Keywords: Contract failure; dividend regulation; emerging markets; implicit contract; stock price reaction (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:46:y:2021:i:2:p:197-223

DOI: 10.1177/0312896220935947

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