This paper adopts a sample of cash dividend changes from all listed A-share firms in China over the period 2000 to 2004 and applies an event study in order to investigate the impact of cash dividend changes on share prices and to examine simultaneously if the dividend signaling hypothesis holds in China’s stock markets.
We find that the cash dividend changes do have a considerable influence on share prices. The share prices react significantly positive to both cash dividend increases and cash dividend decreases, but the share prices respond more severe to cash dividend increases than to cash dividend decreases. These results only half support the signaling hypothesis. In fact, only the positive announcement effect for cash dividend increases fits the dividend signaling hypothesis. Cash dividend decreases, on the other hand, also have a positive announcement effect. Such a market reaction to dividend changes implies that cash dividends are welcome they are whether cash dividend increases or cash dividend decreases.
The announcement effect of cash dividend changes is positive for the sample of
different stock exchanges, but the significance alters with sources of the sample and the event window selection. Therefore, there is no great dissimilarity between the announcement effect of cash dividend changes for different markets in China.
However, the empirical result of the 1999 cash dividend change sample reveals that the cash dividend changes are accompanied by stock price changes in the opposite direction. This analysis result is completely opposite to the dividend signaling hypothesis. This result is also different from that of the 2000-2004 cash dividend change sample. Thus, the announcement effect of cash dividend changes and investors’ attitude toward cash dividend changes may shift with time.
We further investigate factors which may probably have a close connection with the cumulative abnormal returns. We find that the dividend yield has a significantly positive relationship with short-term cumulative abnormal returns, but the significance disappears with the prolongation of event window for cumulative abnormal returns. Thus, high-dividend-yield stocks are inclined to experience higher positive abnormal returns. The ratio of non-floating shares, however, has a significantly negative connection with short-term cumulative abnormal returns. In other words, the existence of the Split Share Structure does have an undesirable influence on cash dividends. We expect that the implementation of “the Pilot Reform of Listed Companies Split Share Structure” not only can float the non-floating shares of A-share listed firms, but can also partly eliminate the negative impact of non-floating shares on cash dividend declaration.
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Figure 1.
Average Abnormal Returns Surrounding the Announcement of Cash Dividend Changes
-0.30 -0.20 -0.10 0.00 0.10 0.20 0.30
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Days Relative to Announcement (%)
Dividend Increase Dividend Decrease
Figure 2.
Cumulative Abnormal Return on Days Surrounding the Announcement of Cash Dividend Changes
-1.00 -0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Days Relative to Announcement (%)
Dividend Increase Dividend Decrease
Figure 3.
Cumulative Abnormal Return on Days Surrounding the Announcement of Cash Dividend Changes for Different Markets
-2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Days Relative to Announcement (%)
Shanghai Dividend Increase Shenzhen Dividend Increase Shanghai Dividend Decrease Shenzhen Dividend Decrease Whole Dividend Increase Whole Dividend Decrease
Figure 4.
Cumulative Abnormal Return on Days Surrounding the Announcement of Cash Dividend Changes: Evidence of Year 1999
-6 -5 -4 -3 -2 -1 0 1 2 3
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Days Relative to Announcement (%)
2000-04 Cash Dividend Increase 2000-04 Cash Dividend Decrease 1999 Cash Dividend Increase 1999 Cash Dividend Decrease
Table 1.
Trend of Dividend Policy in China
This table reports the annual dividend information for a sample of China-listed stocks. The data sample consists of all listed stocks on the Shanghai Stock Exchange and the Shenzhen Stock Exchange over the period 1992 through 2004 that have dividend announcement data on CSMAR (China Stock Market Accounting Research). N is the quantity of the listed firms on the two stock exchanges of China at the end of the year. CD is the quantity of the listed stocks (including both A-share and B-share stocks) that pay cash dividends in the corresponding year. BS is the quantity of the listed stocks paying bonus shares in the corresponding year. TA is the quantity of listed stocks that pay the transference of additional paid-in capital to contributed capital. It is important to note that a firm may simultaneously issue A-share and B-share stocks traded in the Shanghai Stock Exchange or the Shenzhen Stock Exchange. Therefore, BS/N ＞1 is possible in 1992 and 1993.
Year N CD CD/N
(%) BS BS/N
(%) TA TA/N
(%)
1992 53 42 79.25 74 139.62 9 16.98
1993 183 178 97.27 189 103.28 27 14.75
1994 291 265 91.07 179 61.51 8 2.75
1995 323 242 74.92 197 60.99 33 10.22
1996 530 221 41.70 273 51.51 228 43.02
1997 745 268 35.97 200 26.85 202 27.11
1998 851 298 35.02 178 20.92 184 21.62
1999 949 349 36.78 132 13.91 153 16.12
2000 1088 756 69.49 121 11.12 173 15.90
2001 1160 759 65.43 98 8.45 130 11.21
2002 1224 676 55.23 68 5.56 140 11.44
2003 1287 653 50.74 107 8.31 200 15.54
2004 1377 784 56.94 64 4.65 179 13.00
Source: CSMAR (China Stock Market Accounting Research).
Table 2.
Share Structure of Listed Firms in China
This table summarizes the share structure of listed firms in China. The source of the data is the website of China Securities Regulatory Commission. T is the total shares of all listed firms. NF is the non-floating shares of all listed stocks. F is the floating shares of all listed stocks. All information provided below is year-end data.
Year T
(million shares)
NF (million shares)
NF/T (%)
F
(million shares)
F/T (%)
1999 308,895 200,929 65.05 107,965 34.95
2000 379,170 243,743 64.28 135,427 35.72
2001 521,801 340,485 65.25 181,316 34.75
2002 587,546 383,868 65.33 203,677 34.67
2003 642,846 414,423 64.47 226,758 35.27
2004 714,943 454,291 63.54 257,719 36.05
2005 762,951 471,474 61.80 291,477 38.20
2006 1,489,757 925,978 62.16 563,800 37.84
Source: http://www.csrc.gov.cn/n575458/n775121/index.html
Table 3.
Cash Dividend Characteristics of the Listed A-Share Stocks
This table reports descriptive statistics of cash dividends for a sample of China-listed A-share stocks. The data sample consists of all listed non-financial A-share stocks of the Shanghai Stock exchange and the Shenzhen Stock exchange over the period 1998 through 2004 that have cash dividend announcement data on CSMAR (China Stock Market Accounting Research). The cash dividends here mean the summation of medium-term and annual cash dividends. N is the quantity of the listed firms on the corresponding stock exchange of China. CD is the quantity of the listed A-share stocks that pay cash dividends in the corresponding year. CD/N is the ratio of cash- dividend-paying stocks which is shown in percentage. AVG is the arithmetic mean of cash dividends per share of the cash-dividend-paying stocks. MED is the median of cash dividends per share of the cash-dividend-paying stocks. STD is the standard deviation of cash dividends per share of the cash-dividend-paying stocks. KUR is the kurtosis of cash dividends per share of the cash-dividend-paying stocks. SKE is the skewness of cash dividends per share of the cash-dividend-paying stocks.
Panel A: The Shanghai Stock Exchange
Year 1998 1999 2000 2001 2002 2003 2004
N 438 484 572 646 715 780 837
CD 127 160 400 427 410 406 492
CD/N (%) 33.06 33.06 69.93 66.10 57.34 52.05 58.78
AVG 0.16 0.16 0.13 0.12 0.14 0.14 0.14
MED 0.15 0.13 0.10 0.10 0.10 0.10 0.10
STD 0.11 0.11 0.09 0.09 0.10 0.11 0.11
KUR 9.14 7.97 5.40 6.87 3.09 6.40 16.03
SKE 2.19 2.17 1.95 2.01 1.55 2.00 2.66
Panel B: The Shenzhen Stock Exchange
Year 1998 1999 2000 2001 2002 2003 2004
N 413 463 514 508 508 505 536
CD 136 148 293 275 218 199 240
CD/N (%) 32.93 31.97 57.00 54.13 42.91 39.41 44.78
AVG 0.21 0.16 0.14 0.13 0.13 0.14 0.17
MED 0.19 0.13 0.10 0.10 0.10 0.10 0.10
STD 0.16 0.11 0.10 0.12 0.12 0.13 0.16
KUR 12.64 3.38 5.04 17.87 6.85 10.98 6.39
SKE 2.59 1.49 1.82 3.13 2.32 2.73 2.13
Table 4.
The Comparison of Financial Characteristics for Cash Dividend Paying and Non-Cash Dividend Paying Firms
This table compares descriptive statistics of cash dividend paying and non-cash dividend paying listed A-share stocks in China. The data sample consists of all cash dividend paying and non-cash dividend paying listed A-share stocks on the Shanghai stock exchange and the Shenzhen stock exchange over the period 2000 to 2004 that have available financial information on the CSMAR (China Stock Market Accounting Research) on the following variable: ASSETS, P/B, P/E, D/A, TATR, ROA, ROE, CR5.
MEAN is the mathematic mean of 5 firm-year observations for each financial variable. MEDIAN is the median of 5 firm-year observations for each financial variable. N is the total quantity of 5 firm-year observations for each financial variable. ASSETS is the book value of assets. P/B is the price-to-book ratio at the end of the year. P/E is the price-to-earning ratio at the end of the year. DEBT is the debit ratio. TATR is the total assets turnover rate. ROA is the return on assets. CR5 is five-stockholder concentration ratio that is the percentage of total shares held by the five largest stockholders of the firm.
NF is the proportion of non-floating shares. SS is the proportion of shares held by the State. P/B and P/E are truncated at the 5th and 95th percentiles. DA, TATR, ROA, and ROE are truncated at the 1st and 99th percentiles.
Panel A: Shanghai Stock Exchange
Cash-Dividend-Paying Firm Non-Cash-Dividend-Paying Firm Variable
MEAN MEDIAN N MEAN MEDIAN N ASSETS (million) 3,785.25 1,485.89 2086 1,687.88 1,076.66 1386
P/B 3.37 2.99 1878 4.39 3.47 1239
Panel B: Shenzhen Stock Exchange
Cash-Dividend-Paying Firm Non-Cash-Dividend-Paying Firm Variable
MEAN MEDIAN N MEAN MEDIAN N ASSETS (million) 2,511.91 1,549.31 1,220 1,510.60 1,023.63 1,227
P/B 3.58 3.10 1,098 4.29 3.37 1,143 Source: CSMAR (China Stock Market Accounting Research).
Table 5.
Descriptive Statistics of the Financial Characteristics of the Sample Firms
This table reports the descriptive statistics of financial characteristics for the sample of firms that change their cash dividends over the period 2000 through 2004. To be included in the sample, the observation must satisfy the sample selection criterion mentioned in Part 4. DC is the percentage change in the cash dividend payment. DY is the dividend yield at the time of the announcement of cash dividend change. DP is the cash dividend payout ratio (cash dividend per share / earnings per share).
ASSETS is the book value of total assets at the end of the year. EPS is the earnings per share. P/B is the price-to-book ratio at the end of the year. P/E is the price-to-earning ratio at the end of the year.
DEBT is the debt ratio. PM is the net profit margin. ROA is the return on assets. ROE is the return on equity. HH5 and HH10 is the Herfindahl-Hirschman Index of the firm’s top-5 and top-10 largest shareholders, respectively. F is the proportion of floating shares. NF is the proportion of non-floating shares. SS is the proportion of shares held by the State.
Cash Dividend Increases Cash Dividend Decreases Variable
MEAN MEDIAN N MEAN MEDIAN N
DC (%) 75.66 42.86 460 -39.01 -37.50 422
DY (%) 2.11 1.68 460 1.27 1.05 422
DP (%) 60.33 57.35 460 56.55 46.58 422 ASSETS (million) 4,416.59 2,039.26 460 2,965.72 1,732.50 422
EPS 0.34 0.29 460 0.22 0.20 422
P/B 3.25 2.70 460 2.97 2.54 422
P/E 37.95 32.19 460 69.63 43.87 422
DEBT (%) 40.17 40.22 460 40.13 40.48 422 TATR (%) 67.56 56.53 460 58.60 49.23 422
PM (%) 12.94 8.52 460 10.71 6.29 422
ROA (%) 5.53 4.96 460 3.68 3.22 422
CR5 (%) 64.66 66.81 460 62.23 64.04 422 CR10 (%) 66.02 68.80 460 63.55 65.31 422
HH5 3055 2953 460 2824 2750 422
HH10 3136 2974 460 2869 2759 422
F (%) 36.25 34.02 460 37.41 35.85 422
NF (%) 63.75 65.98 460 62.59 64.15 422 SS (%) 36.89 39.37 460 35.24 39.31 422
Table 6.
Effect of Dividend Changes on the Market Price
This table examines the effect of dividend changes on the market price for stocks that change their dividends during the period 2000 to 2004. Each observation in the sample satisfies the criteria mentioned in Data Sources and Sample Selection. AR is the average abnormal return surrounding announcements of cash dividend changes. CAR is the cumulative abnormal return on days surrounding the announcement of cash dividend changes. T is the t-value of the ordinary cross-sectional method. Z is the t-value of standardized residual cross-sectional method.
Panel A: Cash Dividend Increases Panel B: Cash Dividend Decreases Day AR
8 0.05 0.71 0.65 0.38 0.88 1.48 0.06 0.77 1.02 -0.05 -0.08 0.61 9 -0.04 -0.50 0.13 0.34 0.78 1.48 0.04 0.56 0.87 -0.01 -0.01 0.69 10 -0.02 -0.23 0.19 0.32 0.71 1.46 -0.14 -1.61 -1.10 -0.14 -0.22 0.54 11 0.09 1.18 1.45 0.41 0.90 1.68 0.02 0.25 0.59 -0.12 -0.18 0.61 12 0.07 0.98 1.48 0.48 1.02 1.88 0.02 0.28 0.21 -0.10 -0.16 0.63 13 0.05 0.75 0.78 0.53 1.10 1.92 0.01 0.14 0.58 -0.09 -0.14 0.69 14 0.08 1.12 1.19 0.61 1.26 2.09* -0.08 -0.99 -0.78 -0.17 -0.25 0.57 15 -0.04 -0.56 -0.37 0.57 1.17 2.04* -0.05 -0.85 -0.86 -0.23 -0.32 0.48 16 0.12 1.43 1.44 0.69 1.39 2.25* -0.17 -2.26* -2.24* -0.40 -0.56 0.26 17 -0.10 -1.30 -1.22 0.59 1.17 2.04* 0.24 2.96** 2.84** -0.15 -0.22 0.58 18 -0.05 -0.71 -0.33 0.54 1.05 1.96* -0.04 -0.55 0.01 -0.20 -0.28 0.57 19 -0.06 -0.82 0.13 0.48 0.92 1.94 -0.12 -1.74 -1.14 -0.32 -0.44 0.46 20 0.00 -0.03 -0.22 0.48 0.91 1.92 0.00 0.02 0.18 -0.31 -0.44 0.47
The symbols *, **, and *** denote statistical significance at the 5%, 1% and 0.1% levels, respectively, using a 2-tail test.
Table 7.
Cumulative Abnormal Returns for Different Event Windows
This table presents cumulative abnormal returns of different event windows for stocks that change their dividends during the period 2000 to 2004. Each observation in the sample satisfies the criteria mentioned in Data Sources and Sample Selection. CAR is the cumulative abnormal return on days surrounding the announcement of cash dividend changes. T is the t-value of the ordinary cross-sectional method. Z is the t-value of standardized residual cross-sectional method.
Cash Dividend Increase Cash Dividend Decrease Event Window
CAR T(CAR) Z(CAR) CAR T(CAR) Z(CAR)
(-20,0) -0.52% -1.46 -0.80 -0.71% -1.36 -0.83 (-10,0) -0.21% -0.88 -0.38 -0.50% -1.41 -1.10 (-5,0) 0.06% 0.33 0.30 -0.25% -1.19 -0.79 (-3,0) 0.12% 0.89 1.36 -0.18% -1.11 -0.98 (-2,0) 0.22% 1.80 2.26* -0.15% -1.10 -0.88 (-1,0) 0.24% 2.47* 2.72** -0.06% -0.57 -0.28 (0,+1) 0.38% 3.75*** 4.40*** -0.02% -0.15 0.69 (0,+2) 0.53% 4.30*** 5.07*** 0.01% 0.11 0.79 (0,+3) 0.72% 4.75*** 5.54*** 0.08% 0.51 1.24
(0,+5) 0.81% 4.72*** 5.17*** 0.22% 1.11 2.03*
(0,+10) 1.08% 4.41*** 4.98*** 0.51% 1.81 2.78**
(0,+20) 1.23% 3.45*** 4.48*** 0.34% 0.87 1.98*
(-1,+1) 0.39% 3.28** 3.52*** -0.02% -0.16 0.55 (-3,+3) 0.61% 3.20** 3.81*** -0.05% -0.24 0.20 (-10,+10) 0.63% 1.80 2.45* 0.06% 0.13 0.68 (-20,+20) 0.48% 0.91 1.92 -0.31% -0.44 0.47
The symbols *, **, and *** denote statistical significance at the 5%, 1% and 0.1% levels, respectively, using a 2-tail test.
Table 8.
Effect of Dividend Changes on the Market Price for Different Markets
This table examines the effect of dividend changes on the market price for stocks listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange that change their dividends during the period 2000 to 2004. Each observation in the sample satisfies the criteria mentioned in Data Sources and Sample Selection. AR is the average abnormal return surrounding announcements of cash dividend changes. CAR is the cumulative abnormal return on days surrounding the announcement of cash dividend changes. T is the t-value of the ordinary cross-sectional method. Z is the t-value of standardized residual cross-sectional method.
Panel A: Cash Dividend Increase Panel B: Cash Dividend Decrease
Shanghai Shenzhen Shanghai Shenzhen
Day
5 -0.01 -0.07 -0.13 0.11 0.86 0.55 0.02 0.17 0.23 0.16 1.19 1.62 6 0.13 1.47 1.90 0.01 0.11 0.14 0.21 2.22* 1.92 0.12 1.16 1.17 7 0.32 3.69*** 3.78*** -0.05 -0.56 -0.61 0.23 2.30* 2.27* 0.02 0.20 0.24 8 0.16 1.58 1.39 -0.12 -1.25 -1.06 0.12 1.09 1.36 -0.03 -0.31 -0.21 9 -0.03 -0.35 0.12 -0.04 -0.38 0.04 0.12 1.29 1.41 -0.08 -0.69 -0.30 10 -0.01 -0.10 0.13 -0.03 -0.26 0.14 -0.08 -0.74 -0.07 -0.22 -1.64 -1.75 11 0.09 0.88 1.32 0.10 0.79 0.65 -0.06 -0.50 -0.26 0.14 1.08 1.34 12 0.00 -0.03 -0.14 0.19 1.60 2.47* 0.06 0.70 0.60 -0.05 -0.54 -0.51 13 0.05 0.57 0.57 0.05 0.49 0.53 -0.06 -0.64 -0.04 0.12 0.94 0.98 14 0.12 1.36 1.39 0.00 0.03 0.11 -0.07 -0.66 -0.95 -0.09 -0.75 -0.12 15 -0.01 -0.15 0.03 -0.08 -0.77 -0.63 -0.06 -0.68 -0.47 -0.04 -0.52 -0.87 16 0.18 1.72 1.93 0.01 0.11 -0.12 -0.32 -2.97** -2.74** 0.05 0.49 0.15 17 -0.06 -0.58 -0.38 -0.17 -1.57 -1.69 0.34 2.99** 2.81** 0.09 0.82 0.87 18 -0.06 -0.77 -0.64 -0.02 -0.19 0.29 -0.05 -0.48 -0.08 -0.03 -0.26 0.16 19 -0.10 -1.16 -0.71 0.01 0.04 0.95 -0.20 -2.18* -1.93 0.01 0.06 0.65 20 -0.05 -0.57 -0.74 0.08 0.89 0.83 -0.02 -0.20 0.03 0.03 0.27 0.25
The symbols *, **, and *** denote statistical significance at the 5%, 1% and 0.1% levels, respectively, using a 2-tail test.
Table 9.
Cumulative Abnormal Returns of Different Event Windows for Different Markets
This table presents cumulative abnormal returns of different event windows for stocks listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange that change their dividends during the period 2000 to 2004. Each observation in the sample satisfies the criteria mentioned in Data Sources and Sample Selection. CAR is the cumulative abnormal return on days surrounding the announcement of cash dividend changes. T is the t-value of the ordinary cross-sectional method. Z is the t-value of standardized residual cross-sectional method.
The symbols *, **, and *** denote statistical significance at the 5%, 1% and 0.1% levels, respectively, using a 2-tail test.
Table 10
Cumulative Abnormal Returns for Different Event Windows:
Evidence of Year 1999
Cash Dividend Increase Cash Dividend Decrease Event
Windows CAR T(CAR) Z(CAR) CAR T(CAR) Z(CAR)
(-20,0) -3.32% -1.80 -1.38 0.44% 0.26 1.14 (-10,0) -2.08% -1.54 -1.32 -0.13% -0.11 0.32 (-5,0) -1.27% -1.23 -1.02 -0.13% -0.16 0.30 (-3,0) -1.64% -1.37 -1.40 0.65% 0.92 1.36 (-2,0) -1.19% -1.27 -1.20 0.55% 0.98 1.47 (-1,0) -0.75% -1.09 -1.00 0.62% 1.22 1.61 (0,+1) -0.21% -0.30 0.15 0.73% 1.35 1.80 (0,+2) -0.18% -0.22 0.22 1.06% 1.46 1.95 (0,+3) -0.27% -0.31 0.21 1.06% 1.41 1.79 (0,+5) 0.09% 0.10 0.75 1.99% 1.75 2.03*
(0,+10) -1.15% -0.84 -0.26 1.98% 1.31 1.83 (0,+20) -1.40% -0.67 0.04 2.16% 1.14 1.64
(-1,+1) -0.81% -0.95 -0.51 1.16% 1.81 2.40*
(-3,+3) -1.75% -1.19 -0.91 1.51% 1.50 2.07*
(-10,+10) -3.08% -1.51 -0.98 1.65% 0.84 1.56 (-20,+20) -4.56% -1.39 -0.69 2.40% 0.83 1.63
The symbols *, **, and *** denote statistical significance at the 10%, 5%, 1% and 0.1% levels, respectively, using a 2-tail test.
Table 11.
Effect of Cash Dividend Changes on the Share Prices: A Multivariate Analysis
This table reports the average estimated coefficients of the following cross-sectional regression:
0 1 2 3 4 5 6 7 8
it it it it it it it it it
CAR =β +βDC +β DY +β DP +β SIZE +β PB +β DEBT +β TATR +β ROA +
9NFit it
β +ε .
The sample consists of stocks that change their cash dividends during the period 2000 to 2004. Each observation in the sample satisfies the criteria mentioned in Data Sources and Sample Selection. CAR is the cumulative abnormal return for different event windows around the announcement of the dividend changes. DC is the percentage change in the cash dividend payment. DY is the dividend yield at the time of the announcement of the cash dividend changes. DP is the dividend payout ratio (cash dividend per share/ earnings per share). ASSETS is the logarithm of the book value of the total assets at the time of the announcement of the cash dividend changes. P/B is the price-to-book ratio at the end of the year. DEBT is the debt ratio (book value of total liabilities/ book value of total assets). TATR is the total assets turnover rate. ROA is the return on assets. NF is proportion of non-floating shares. The F-statistics test the joint hypotheses that both the intercept and the slope coefficients are insignificantly different from zero. Finally, t-statistics are in parentheses.
Dependent Variable= CAR
The symbols *, **, and *** denote statistical significance at the 5%, 1% and 0.1% levels, respectively, using a 2-tail test.