STOCK DIVIDENDS AND SIGNALING: NEW EVIDENCE FROM CHINESE A SHARES

摘要

Although stock dividends and splits seem to be just cosmetic transactions that do not create value, lots of evidences are found that market reacts positively on such announcements by listed firms in both developed and emerging markets. One of the explanations to this phenomenon is hypothesis of signalling, which argues that stock dividends and splits contain information about future earning growth and then incur the positive market reactions. This article documents market reactions to stock dividend announcements of 2000 to 2008 financial years in Chinese A-share market and provides new evidence that support the signalling hypothesis. By comparing P/E (Price/Earning) ratio changes over the quarters around stock dividend announcement dates, our results show that P/E ratios do not increase significantly over the quarters around stock dividend announcement dates and price increasing following the announcements accompanies earning growth in the coming quarters, which means stock dividends may contain information about future earning growth.