Corporate Governance, The Change Of Cash Dividends And The Persistence Of Earnings Change

The persistence of earnings change in listed companies was of great importance, as it is an important aspect for analyzing the listed companies'investment value, and it have received great attention from theoretical field and practical investment. There are many researches on the issues of the persistence of earnings change and cash dividends individually.As to the topic of the earnings persistence of listed companies, there are mainly two research directions. One is to study the earnings'persistence with time series model, and this is the traditional method of researching on earnings'persistence. It focuses on the technology issue of earnings'change research, and explores the order number of earnings auto regression model and variable measurement. The other is based on e persistence of different components in earnings, studying, which component lasts longer and which lasts weakly. These studies provide important evaluation criterions for investors to assess the listed companies'earnings information.On the topic of listed companies'cash dividend change, there are three ways of studying. Firstly, it is to examine the market reaction of cash dividend announcement on the basis of the signaling effect of cash dividend. Generally, on the mature western capital market, when cash dividend increases, the market reaction is positive, investors welcome the announcement of cash dividend increase and would yield positive abnormal returns; when cash dividend decreases, the market reaction is negative, and investors dislike the announcement of cash dividend increase and would yield negative abnormal returns. That is to say, the change of cash dividend would change the investors'view on the earnings'and dividend's expectations of listed companies, and then their attitude would reflect on the stock abnormal returns. But the empirical researches cannot yield same conclusions on this aspect. Some studies found that the market reaction of Chinese listed companies'cash dividend change announcements is the same as that of the foreign mature capital market, but the event window is very short or the significance is very low; Some studies found that the cash dividend change announcements cannot receive effective feedback. As long as the listed companies provide cash dividend whenever the dividend increases or decreases, the investors would not welcome them and would not react to them discriminatingly.The second way to research on the cash dividends change of listed companies is to explore the relationship between cash dividend and the company's future earnings directly. This method regresses the future earnings on the cash dividend directly to find the reflection degree of cash dividend on the listed companies'future earnings. As for the basically identical conclusions from the research on foreign listed companies, researchers mostly find that the future earnings of listed companies are positively related to the cash dividend, it means that greater dividend predicts high future earnings and fewer dividends predict lower future earnings. On the researches of domestic listed companies, there are different findings. One kind of viewpoint thought that the dividend is positively related to future earnings of listed companies, but the other thought that the dividend of Chinese listed companies'dividend is mostly based on the large stockholder's expropriation and can not display the information of listed companies'future earnings.In addition, there is another way of thinking that combine the cash dividend information and earnings announcement to study. Because the time interval between cash dividend announcements and earnings announcements of listed companies, investors would consider the company's investment value on the base of both. The cooperation of dividend and earnings would provide the investors valuable reference to evaluate one kind on information's value based on another. This method of studying yields a lot of empirical support. A great number of domestic and foreign researches proved this method's comprehension.Based on the signaling effect of cash dividend change of listed companies, Studying with the method of combine cash dividend change and the persistence of future earnings change is of great realistic importance.American researchers have examined the predictive implications of cash dividend changes to the persistence of earnings change, and Chinese scholars have also studied on this issue. But in this paper, I think that because of the significant difference between the cash dividend change's market reaction in Chinese stock market and that in the developed markets, when we want to study the relationship between cash dividend change and the persistence of earnings change in Chinese listed companies, the western research pattern would not apply properly, and we should describe and measure this relationship on the basis of the particular characters of Chinese listed companies and the unique regulation environment.Based on former studies, this paper researched the difference between the cash dividend change's market reaction of Chinese listed companies and that of the foreign western capital market firstly, providing evidence on the viewpoint that studying the predictive implications of cash dividend changes to the persistence of earnings change just from the angle of cash dividend change's market reaction is not suitable.Secondly, this paper explored the relationship between corporate governance, cash dividend change and the persistence of earnings'change in Chinese listed companies. We found that the cash dividend change also has predictive implications to the persistence of earnings'change, even though this implication in Chinese capital market is not as significant as that in the western developed capital markets. In addition, this implication is influenced strongly by the corporate governance structure and the predictive implications of cash dividend changes to the persistence of earnings change displayed directly and not through the market reaction of cash dividend change. Then the conclusion that the predictive implications of cash dividend changes to the persistence of earnings change is influenced strongly by the corporate governance structure provides a good reference aspect for the market participants to evaluate the listed companies'performance and their investment value.