The Empirical Study Of The Signaling Effect Of Cash Dividend Initiation

Dividend policy is one of the core issues of finance in enterprises, which is not only related to the interests of investors, but also related to the enterprise’s own management and investment problem. It is also a hot topic in the field of financial management for a long time. After more than20years development, securities market of China has reached a certain scale. The stock market can function effectively in a certain extent. Cash dividend is an important form of dividend distribution of listing corporations and is the most important way for investors to realize their return on investment. Because listing corporations are lack of stable cash dividends, it makes the capital market full of speculation, which is not conducive to the development of the capital market. Therefore, in order to guide the investors to establish long-term value investment philosophy and to keep the stability of capital market, to develop a continued, transparent, clear cash dividend policy for a listing corporation is very necessary. For these purposes, China has formulated a series of laws and regulations and guidelines from2001, which shows that our country has paid much attention to cash dividend and reflects that cash dividend plays an important role in the development of capital market. At the same time, signaling theory is one of the main representative theories of dividend, and studies have shown that the signaling theory is suitable for Chinese capital market. But the studies results of signaling theory in our country is not consistent. Because the cash dividend relates to the outflow of cash and has an important influence on the company’s normal management and investment decision, this paper mainly research on cash dividend. While there are no previous dividend distributions for the dividend initiation, which can eliminate the influence of other factors, dividend initiation is a simpler sample of dividend policy study. In China the study about the cash dividend initiation is less, and therefore this paper which studies the cash dividend initiation’ signal theory has a certain value. This paper studies the signaling effect of cash dividend initiation by combining the theory of dividend with empirical researches. Firstly, this paper introduces the dividend theory, and summarizes the basic theory of signaling theory, which makes theoretical foundations for this study. Then, in order to understand the overall situation of Chinese cash dividends and the existing problems, we describe the overall situation of Chinese cash dividends, which paves the way for the later research, and to some extent, is helpful for the analysis of the results of the empirical study. On this basis, we conducte an empirical study, using the method of event study and multiple regressions, to test and analyze the signaling effect of the cash dividend initiations and also compare the signal the signaling effect before the Reform of Non-tradable Shares with the signal the signaling effect after that. In addition, there are positive and negative CARs, and by this, we split the full sample into two groups. We compare the two groups and analyze why there are both negative CARs and positive ones. Finally, this paper draws some conclusions and obtains some inspirations from the research. Research findings show that:(1) there are some characteristics of cash dividend in our country. They are as follows:the proportions of companies that have paid cash dividends is low; the magnitude of cash dividend is small; cash dividends are not continuous; there are some overpaid cash dividends; different industries have different characteristics of cash dividends.(2) The market reaction to the cash dividend initiation announcement is significant, which indicates that cash dividend initiation exists signaling effect. The cumulative excess return of the cash dividend initiation announcement before and after the Reform of Non-tradable Shares has remarkable difference. CARs after the Reform of Non-tradable Shares are more significant, which indicates that signaling effect of the cash dividend initiation announcement after the Reform of Non-tradable Shares is stronger than before.(3) The multiple regression results indicate that the dividend yeild, free cash flow per share, size and debt-to-asset ratio, the cumulative excess return rate of20days before the announcement, the proportion of institutional investors and market reaction of the cash dividend initiation have significantly relations. The coefficients of the rate of return on net assets, book-to-market ratio, A shares in circulation ratio are positive and the top one shareholders ratio are not as expected. In addition, we compared the group whose CARs are positive with the group whose CARs are negative, and we find that the positive or negative CARs are not only related with the market anticipation, but also related with the characteristics of companies.