An Empirical Study On Stock Dividend Abnormal Returns In China’s A-share Market

After the shareholder structure reform and "People’s Republic of China Securities law" revision and implementation, the Chinese stock market gradually moves toward maturely. The new time of all entire people’s stocks is met in2007. Listed company’s every action and every movement affects each nerve of investors, and the dividend policy naturally becomes the people’s hot topic.Stock dividend is always a focus of the interest of the market. In the case of not changing the cash flow and ownership structure, it makes no influences on company by increasing the quantity of circulation stock or changing the account. However, the domestic and foreign research demonstrated that during the event period, the objects of observation indeed had the unusual income. How to explain this phenomenon becomes the bone of contention of the theory and practice fields. Different empirical results even led to opposite conclusions. Stock dividend becomes much more mystical.Mature theories include Signaling Theory, Optimal Price Theory, Investor Hallucination Theory and Wealth Hallucination Theory. Many scholars have conducted empirical research on the above theories, but the same theory in different literatures showed a different empirical results. At the same time, domestic studies have focused on the empirical test of foreign theory, and lack of attention to the relevant factors affecting the abnormal returns. Based on the problems of academic research, this paper selects representative years of investigation(2007-2010), stock dividend events in A-share market, the announcement date and ex-dividend date as the event date, event study method, comparative analysis method, and multiple linear regression method to analysis the abnormal reaction and the factors of impacting the abnormal returns.First, the main contents and perspectives1. Characteristics of the stock dividend1.1Characteristics of the annual distribution Stock dividend is closely related to the market quotation. The proportion of listed companies sending stock dividends is higher in bull market, and the quantity of stock dividend is larger.1.2Characteristics of the proportion distributionProportion of central tendency is obviously. Listed companies imitate each other and lack of specificity.1.3Characteristics of internal structureThe proportion of capitalization of accumulation fund is higher than stock distribution. The main reason for this phenomenon is the different accounting treatment. Undistributed profit is the base of stock distribution, and capital accumulation is the base of capitalization. Implementation of the free dividend policy distorts the dividend policy to reflect the performance of the company.2. Event study method, comparative analysis of the listed company’s basic aspect changes2.1Financial①Profitability, after event day, ROE increased significantly, and in the third quarter, ROE down to the level before event day. The information of management layer trying to deliver to market has timeliness. Signaling Theory is only effective in short term.②Growth ability, after event day, net profit growth rate decreased significantly.The result of statistical analysis is opposite to Signaling Theory. There are serious regulatory problems in China’s stock market. Listed companies use stock dividends to cover up the corporate issues. Regulators turned a blind eye to acts against the behavior against shareholders’ interests.③Debt paying ability, the current ratio is basically no change. Listed company’s current ratio maintained in a reasonable level of internationally recognized. And the companies issuing high stock dividends are much better. The result of statistical analysis supports Signaling Theory.2.2Non-financial①Growth rate of the number of shareholders, increased significantly. Market reacted strongly to the stock dividend.②The proportion of institutional ownership, increased significantly too. Optimal Price Theory and Attention Theory can both explain①②. ③Turn over rate, increased significantly and with good continuity. Liquidity hypothesis and Optimal Price Theory are effective in this part.3. Event study method:Empirical Analysis of the abnormal returns of the stock dividend3.1The announcement date①TO different year, CAAR was significantly positive. The nearer to announcement date, the larger CAAR was.(2)TO different market quotation, CAAR was larger in bull market and less in bear market. Market is speculating to stock dividend.③Market is more sensitive to the stock dividend information in bull market. The reaction is not only more intense, but also ahead of time. Information disclosure and insider trading exist in China’s market.3.2Ex-dividend dateCAAR was opposite to market expectations. Recovery of the right did not occurred in bull market, but occurred in bear market.①In bull market, market trading is active. After issuing stock dividend, the pre-entry made profit taking. It made the stock price fall. The investors didn’t buy the stock just because of the price falling. Investor Hallucination Theory was not effective here, but Wealth Hallucination Theory did.②In bear market, the investors were much cautious. Maybe the pre-entries were still held-up. After issued stock dividend, the price fell deeply. It provided opportunity to risk averter. At the same time, the investors held-up could dilute cost.4. Multiple linear regression method:Analysis the factors of impacting the abnormal returnsEventually, the variables entered the model in order were the proportion of the stock dividend, stock prices, net profit growth ratio, ROE, earnings per share, the proportion of institutional ownership.4.1The proportion of the stock dividend’s symbol is positive, and is the first variable to enter the model which consistent with our expectations. The higher the proportion, the easier investors to think positive.4.2The price sign is negative. The higher the stock price, the lower the intensity of market reaction. Investors tend to think the stock dividend be speculation4.3The sign of net profit growth ratio and ROE is negative. Net profit growth ratio and ROE have become the indicators which investors focus on. The investment value has been fully excavated, so there is slight reaction on the two indicators.4.4The sign of EPS is positive. EPS was high, but no cash dividends, increasing the probability of getting cash dividends next time. Or just showing existing good invest opportunities companies to take. So market reaction is positive.4.5The sign of the proportion of institutional ownership is negative which is consistent with our expectations. The higher the proportion, the lower information asymmetry, and the weaker the market reaction.Second, the main conclusions1. Market quotation plays a part in stock dividends policy and market reaction. China’s stock market, the atmosphere of the concept of speculation is still strong.2. To high stock dividend companies, the financial indicators are better than the low ones. And the information sent to market is much more credible.3. The proportion of institution ownership increased obviously by issuing stock dividends. The stock dividends policy caused institutional investors attention. The result supports Attention Theory4. Companies with high net profit growth ratio and ROE have low market reaction. The result is opposite to most of the scholars. The investment value has been fully excavated, so there is slight reaction on the two indicators. It supports Attention Theory in other side.5. The higher stock price, the lower market reaction. It supports Investor Hallucination Theory to a certain extent.Third, the contribution1. Research Methods. To Integrated use of event study method, comparative analysis method, and multiple linear regression method to analysis the abnormal reaction and the factors of impacting the abnormal returns.2. Sample selection. Only selecting data of capitalization of accumulation fund and stock distribution, makes the research much more targeted.3. The data contends bull market, bear market and shocking market. This voided the impact of the single market on the results. The analysis results have universal significance.4. Compared financial data showed the phenomenon which some listed companies take the stock dividends to cover deterioration of financial position. The results provide the factual basis to regulators and wake-up call for the protection of the interests of investors.5. Companies with high net profit growth ratio and ROE have low market reaction. The result breaks down of traditional knowledge and research findings. Facts have proved that Chinese investors are moving towards a mature. This is the great progress made in the development of China’s stock market.