The Empirical Research On The Market Reaction Of High Stock Dividends And Stock Splits

The announcement of stock dividends is often regarded as a “good news” in China’ssecurities market, especially the companies who have the high stock dividends and splits, whichare strongly sought after by the market. In theory, the stock dividend is only used by listedcompanies to shareholders’ equity subject adjustment, which will not affect the cash flow, andalso does not increase shareholder wealth. The stock dividend is not the nature of the impact oflisted companies’ value, and there are no substantial economic implications. However, from ourstock market since its establishment two decades, the high stock dividends and splits enjoyinvertors’ enthusiasm but no sign of abating. In this paper, we use the “functional fixation”hypothesis to study the market reaction on the high stock dividends and splits."Functionalfixation" hypothesis suggests that investors tend to fix in the decision-making process at specificsurface information, cannot fully understand and use information to assess the value of securitiesin order to make the right investment decisions.In concluding on the basis of relevant literature, we use the2007-2011Shanghai A-sharelisted companies which publish high stock dividends as a sample, starting from the" functionlock "hypothesis theory, using the event study method, and independent T-Test to study the stockportfolios. We try to study the market reaction to the high stock dividends and whether there is a“functional fixation” phenomenon on the reaction to stock dividends. The study found thatinvestors cannot distinguish the difference EPS with two similar shares of stock dividends,which indicate that investors’ reaction to the dividend announcement information for listedcompanies only fixed in the shares of stock dividends, not the profitability of companies. Thisshows that investor’s investment enthusiasm on stock dividends is short-lived, and also blind,without the support of the profitability of listed companies.