Stock Dividends’ Impact On Stock Prices: An Empirical Study In China’s A Share Market

As distribution of stock dividend is becoming more and more common in China’sA share stock market, it attracts lots of investors to speculate and it seems like stockdividends would bring abnormal returns. This paper mainly studies the abnormalreturns around the announcement day of stock dividends distributed by companieslisted on China’s A share market from year2008to2010and the relationship betweenthe abnormal return and stock dividend payout ratio, cash dividend yield, earningsgrowth rate, returns on equity, price-to-earnings ratio and firm size. By applying eventstudy method this paper finds that there exist significant positive abnormal returnsfrom day-5to the announcement of stock dividends and no significant abnormalreturn after the announcement of stock dividends in year2008,2009and significantnegative abnormal returns on the five days after the announcement in2010. Moreover,statistical findings from regression models reveal that the abnormal returns from day-5to the announcement day are positively correlated to the stock dividend payoutratio but have no significant relationship with the cash dividend yield, earningsgrowth rate, returns on equity, price-to-earnings ratio and firm size in year2008,2009and2010.