Stock dividend puzzles in China

Hamish Anderson, J. Chi, C. Ing-aram and L. Liang

Journal of the Asia Pacific Economy, 2011, vol. 16, issue 3, 422-447

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.

Date: 2011
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DOI: 10.1080/13547860.2011.589630

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