Study On The Motivation And Effects Of Stock Dividend And Stock Split Of Listed Companies

Dividend policy is one of the three major financial decisions of listed companies.Designing a scientific and reasonable dividend policy is not only conducive to thesustainable development of listed companies, but also can offer shareholders areasonable return. Differently from the matured market economy countries, the dividenddistribution policy of Chinese listed companies is featured with paying more attention tostock dividend and stock split compared to cash dividends. As the importantinformation conveyed by listed companies, stock dividend and stock split is often seenas the direct reflection of listed companies operating performance and true value.However, stock dividend and stock split can result in the operator’s opportunismbehavior and the market participant s high degree of attention, leading to drasticchanges of the company’s future financial performance, stock price and market liquidity.Therefore, the motivation and relevant effects of stock dividend and stock split havebeen the focus of the academic and practical circles.After determining the deficiency of the existing researches and mastering theactual situation of stock dividend and stock split of Chinese listed companies, this paperstudies the motivation of conducting stock dividend and stock split from the view ofcatering theory. Then, the paper analyzes the stock price effects, liquidity effects andfinancial effects of stock dividend and stock split of listed companies based on thesignaling theory. Finally, the paper summaries the overall effects and matches therelevant effects and motivation of stock dividend and stock split, then puts forwardrelevant policy recommendations from the aspects of regulators, listed companies andinvestors. This study has important theoretical value and practical significance. It notonly helps to test the explanation ability of existing relevant classical hypothesis inChinese market, but also helps to rich and perfect modern corporation finance theoryespecially the dividend theory. In addition, it provides important instruction opinion tolisted companies to make reasonable dividend delivery policy, and gives importantguidance to investors to make effective investment decision according to the dividendannouncements released by listed companies.The empirical research of this paper selects A-shared listed companies whichconduct stock dividend and stock split as well as the other A-shared listed companies inthe same industry in recent years in Shanghai and Shenzhen stock exchange market as research sample and paired sample respectively, then conducts an empirical researchabout the motivation and effects of stock dividend and stock split. The results of thestudy on motivation indicate that the investors demand for stock dividend and stocksplit, which shows as dividend discount, is significantly negatively correlated with theprobability of paying stock dividend and reserve transfer. Listed companies tend to notpay dividend in order to cater to the needs of investors. With regard to companiespaying dividend, investors prefer to stocks with high proportion of stock dividend andstock split. Investors demand is significantly positively correlated with the proportion ofstock dividend and stock split.The paper researches the effects of stock dividend and stock split from the threeaspects such as stock price effects, liquidity effects and financial effects. The results ofthe study on stock price effects show that both sample companies shareholdersexperience significantly positive excess returns before and after the dividendannouncement day, which suggests that favorable information conveyed by stockdividend and stock split has shifted within the same industry and there is strongevidence of significant contagion dominant intra-industry stock price effect. In addition,the study on influencing factors of intra-industry stock price effects finds thatintra-industry stock price effects are more significant when the stock price reactions ofdividend issuing companies are more obvious, when the dividend issuing companies arelarger, when the degree of similarities of dividend issuing companies and non-dividendissuing companies are higher and when the degree of mispricing for non-dividendissuing companies are higher. The results of the study on liquidity effects show thatstock liquidity improved after the announcement day for companies issued stockdividends, and the improve degree is larger when the strength of stock dividend andstock split is greater, when book to market ratio is higher, when dividend issuingcompany is smaller, when stock price increase before the announcement day is greaterand when the volatility of stock return is smaller. In addition, the liquidity effectsexperience some time lag but last long time for the other companies in the same industry.And there is strong evidence of significant contagion dominant intra-industry liquidityeffect in the excavation industry, communication and culture industry, and the powerindustry. While there is significant competition dominant intra-industry liquidity effectin manufacturing industry. The results of the study on financial effects find that stockdividend and stock split do have financial effects, and profitability ability, developmentability, assets management ability and solvency ability significantly increase after theimplementation of stock dividend and stock split. But overall, the financial effects of stock dividend and stock split exist certain hysteresis which generally is a quarter. Inaddition, the financial effects of stock dividend and stock split are positively related tothe payout ratio, companies profitability and development ability.