The Empirical Study On The Influence Of Stability Of Dividend Policy On The Long-term Returns On Stocks

Dividend policy is one of the three most important parts in modern corporate finance, which is the logical continuation of financing and investment activities, is the inevitable requirement of the company financial activities. Since financial analyst Miller and economist Modigliani proposed the "irrelevance of dividend policy" in 1961, lots of western scholars have studied dividend policy from different standpoints with different methods and have and put forward different theories, such as signal theory and agency theory. Scholar of China studied from them and obtained certain achievement on the basis of Chinese situation. Domestic research shows that dividend policies of listed companies in China lack of continuity and stability, characterized by short-term speculation, is more serious. However, number of the studies on long-term effects of the stability of dividend policy on the market is less. Whether and how the stability of dividend policy affects the long-term returns of stocks is of great significance.This article conducted a statistical description of dividend distribution, summarized the characteristics of dividend distribution of listed companies, and put forward hypotheses. We selected stocks which carried more than 5 times of dividend into execution during 1997-2007 for a sample, constructed five portfolios according to the volatility of dividend, then used calendar time regression method to investigate the influence of the stability on long-term returns on stocks. In order to compare the impact of dividend policies better, we proposed amendments to Fama-French three-factor model.The study found that the dividend stocks compared with the non-dividend stocks exists abnormal returns, and abnormal returns of the high dividend stock exceeds the low. According to empirical results and behavioral characteristics of dividends, this article proposed policy proposals: strengthening the capital market and legal system; expanding the overall size of the market and improving the market structure; comprehensively improving the quality of listed companies; improving the quality of investors, to promote the healthy development of China's capital market.