The Effects Of Dividend Policy On Stock Returns: A Theoretical And Empirical Analysis Of Listed Companies In China

Dividend policy is one of the corporate financial decisions in parallel with investment and financing activities, this problem is not only a main focus of corporate finance research but also an important issue in corporate finance practice. In essence, dividend policy is an inner corporate governance mechanism which makes the funds-suppliers of the company got their reasonable returns from their investment. On the one hand, different dividend policies reflect the diversity of ownership structure and the amount of agent costs; on the other hand, dividend policy is one of the most important corporate financial information the investors concern which exerts a direct influence on investment returns, the expectation of stock evaluation, and the adjustment of investment strategies. This paper gives a study on the possible influence of dividend policies on the stock returns.This paper contains three phases. The first phase is theoretical analysis. In this phase, a literature review is made including both foreign and domestic researches, and then we explicate the reaction mechanism of dividend policy on stock return from the framework of dividend relevance theory, after that we conduct a theoretical analysis on the short-term and long-term effect of dividend policy on stock returns in China stock market by using the theory of traditional signaling theory of dividend and the behavioral finance theory, finally some assumptions yet to be verified are put forward.The second phase is empirical study. In this phase, we make a Calendar Time Portfolio according to the 876 sample stocks collected from the listed A stocks in the Shenzhen Stock Exchange during the sample period; and then we estimate the abnormal returns through a regression equation based on the Fama-French three factors model, the results show that:(1) the sample stock portfolio which pay cash-dividend have statistically significant positive abnormal returns in the short-term sample period, but the abnormal returns decrease gradually with the extension of sample period; (2) the sample stock portfolio which pay stock dividend have a statistically insignificant abnormal returns; (3) all the sample stock portfolio exhibit a statistically significant contrarian effect of stock price.The last phase of this paper is the analysis of empirical results and some possible suggestions are put forward according to the theoretical and empirical research.