Research On The Motivation And Consequence Of High Proportion Stock Splits

Since the stock market started to develop in China,the dividend policy of listed companies has attracted investors’ attention.In recent years,the dividend policy of high proportion stock splits has been gradually prevailing.A large number of companies have been inquired by the Securities Exchange due to the implementation of such policy.Generally,the supervisory authorities should not overly interfere with a company’s dividend policies since these policies should be eventually decided and managed by the company itself.However,many listed companies in China take advantage of this policy to raise stock prices and to benefit major shareholders,which severely harms the profits of small and medium investors.In order to regulate the normal operation of the stock market and intensify the supervision of high proportion stock splits,the Shanghai and Shenzhen Securities Exchanges issued the "Guidelines for Information Disclosure of High Proportion Stock Splits for Listed Companies" in 2018.We firstly organize the literature review about the motivation and market reaction of high proportion stock splits and make a concise summary.Secondly,the overall situation of implementing high proportion stock splits in the domestic capital market is summarized and we find and conclude some common characteristics.Then,based on the "Guidelines for High Proportion Stock Splits",we conduct a case study to analyze a representative company that implements high proportion stock splits in recent years.Specifically,we study the behavioral motivations and market reactions for issuing the policy.We also discuss whether the policy is reasonable and whether the implementation matches the growth cycle of the company.Meanwhile,we compare the implementation with policies in the "Guidelines for High Proportion Stock Splits",analyzing the rationality and potential issues of the guidelines.By researching Hebang Biology Company,we conclude that its implementation of high proportion stock splits is ill-motivated,which will trigger regulatory inquiries from the Securities Exchange,and will negatively affect the stock price in both the short and long term.Therefore,investors should improve their investment literacy,and identify the behavior of high proportion stock splits.Furthermore,the supervisory authority should keep improving the related regulation and documents to prevent listed companies from implementing ill-motivated high proportion stock splits.