The Stock Dividend's Influence On Stock Prices: An Empirical Analysis In China

The relationship between a company's dividend policy and its stock price has been of concern to scholars. Literature Review section of this paper reviews various well-known dividend theories from the traditional view of finance under the rational investors and efficient market hypothesis, including the MM dividend irrelevance theory, tax differences theory, client effect theory, information content of dividend hypothesis and agency cost hypothesis, and then introduces dividend theories from the perspective of behavioral finance under the assumption of non-rational market participants, including self-control theory, prospect theory, regret aversion theory, mental accounting theory and dividend catering theory. This study will take into account the stock dividend issue in China's domestic market, so we also introduce the two major hypotheses in stock dividend issue, the dividend declared signaling hypothesis and the theory of optimal trading price range hypothesis.China's domestic securities markets are in the developing and maturing process, we may notice that many market participants have huge passion to operate on this subject. To have a more intuitive analysis of the relationship between stock price and stock dividend event, we will do some empirical studies using the event study methodology. Event study methodology uses the data before and after the incident to calculate abnormal return to show the impact of the event for the asset prices. In this paper, we use the data in the Shanghai Stock Exchange A share market in 2007 (bull market) and 2008 (bear market) as samples, the publication and implementation of the publication as two events, before and after the announcement date of profit distribution plan and the announcement date of the implementation of profit distribution plan time interval as the event time window to form four groups of data. After do the hypothesis test to the cumulative average returns CAR of four sets of samples, we find the following results:There is no significant abnormal returns before and after the announcement date of profit distribution plan and the announcement date of the implementation of profit distribution plan in 2008, which these two messages to send stock dividend information is neutral; but in 2007, two events have made significant positive abnormal returns, to market investors, the information at this time sends good news. We infer that in the bull market, two stock dividend announcements will have significant positive abnormal returns and stock prices rise abnormally, but in the bear market they will not be significantly positive.Governance structure in Chinese listed companies is not perfect, and the stock market is not mature enough. The interpretation of the traditional financial theory to this issue has great restraint, and so in another important part of this paper, we use behavioral finance theory to explain this issue, assuming that corporate managers are rational, and market investors non-rational. We believe that irrational mentality, including availability heuristic, anchoring-adjustment heuristic, hindsight bias, confirmation bias, gambling behavior and speculation in the non-rational psychological, and overreaction, herd effect and other non-rational behavior would lead to investors' decision-making bias and, ultimately, the deviation of asset pricing. Moreover, compared to the dividend declared signaling hypothesis and the theory of optimal trading price range hypothesis in traditional finance that those deviations in behavioral finance may give us a more explanatory power, and we also hope that this simple analysis will give proposal and reference for further study.