The Research Of Abnormal Dividend’s Signaling Role On Earnings Quality

As one of the three pillars of the theory of corporate finance, dividend policy has always been the focus of attention. In the case of asymmetric information, investors want to get information about the company’s future growth prospects from the probe into the company’s dividend policy, while managers in listed companies want to communicate good signal to investors about corporate performance through reasonable dividend policy, therefore the information content of dividend policy is widely concerned.According to signaling theory, only when the management expected earnings would significantly increase in the future, then they will improve the cash dividend payout ratio, so in Chinese stock market, whether abnormal cash dividend of listing corporations has the signal transmission function and reflects the different corporate earnings persistence, whether investors can determine the company’s future prospects for the development according to the abnormal dividend motivation, are the study of abnormal dividend behavior on earnings persistence signaling role of significance.Based on this consideration, this article analyze the level of surplus quality of listed companies in the next two years, in order to explore if the various form of dividend distribution has a signaling role on the company’s earnings quality. On this basis, the article further explores the abnormal dividend’s signaling role on the surplus quality of listed companies and whether the increase of ownership concentration has a certain impact on such a signaling role. After the empirical analysis of the data listed companies from2007to2009in Shanghai and Shenzhen, the results showed that:first, the persistent surplus distribution of cash dividend signals a stronger surplus of higher quality; second, abnormal cash dividend has a signaling role on earnings quality; third, as the enhancement of shareholder’s stake, abnormal cash dividend’s signaling role of the persistent surplus will increase. This article makes three assumptions:first, the distribution of cash dividends of listed companies has a signaling role, and the companies who have distribute cash dividends have earning higher quality; second, abnormal dividend is working on earnings quality, and it also has a signaling role; third, ownership concentration weakens the abnormal dividend signaling role on earnings quality.By empirical inspection of a shares data of listed company between2007and 2009and the results analysis indicates that:first, cash dividend and earnings persistence of product factor is positive, and it notes that cash dividend distribution of listing corporation earnings persistence is stronger, and earnings quality is also higher. Second, listing corporation’s earnings persistence and abnormal cash dividend amount of product factor is positive, and it indicates that cash dividend is related to earnings persistence, and abnormal cash dividend has the signal transmission function on earnings quality. Third, along with the enhancement of holding proportion of large shareholders, abnormal cash dividend and earnings persistence, the proportion of the first shareholder’s product coefficient is significantly negative, so the ownership concentration will weaken the abnormal dividend’s signal on earnings persistence.