An empirical study about catering theory of dividends: The proof from Chinese stock market
Abstract: This paper aims to
study the remarkable effect of dividends catering in Chinese stock market, and
its significance on dividend policy and investment decisions. Is there a
significant difference in operation status of companies between issuing cash
dividend and those without cash dividend, and which one is the better? Is there
a significant difference in income level of stocks between issuing cash
dividend and those without cash dividend, which one is the higher? Is the
irrational preference of cash dividend detracting along with the development
and improvement of securities market? All issues above need the market
inspection.
Design/methodology/approach: Based on related dividend theories and the
empirical data of Chinese securities market, we construct three portfolios
including stock dividend, cash dividend and non-dividend. The paper studies the
returns from these three kinds of portfolios which is analyzed by the least
significant difference method, co-integration model, Sharpe index model, and error
correction model, and then finally comes to the conclusions.
Findings: The main finding is that there is significant effect of
dividends catering in Chinese stock market; the income level of cash dividend
portfolio is significantly lower than that of other portfolios; the listed
companies issuing stock dividend have a high investment value.
Originality/value: Through collecting a lot of data from the year 2004 to
2009 and developing models to analyze, the paper deem that whether the earnings
growth or not determines the dividend policy of listed companies, and that
stock dividend is the natural choice for those listed companies which have
sustainable development advantages.
Keywords: Dividend Policy;
Catering Theory of Dividends; Stock Dividend; Sharpe Index Model;
Co-integration; Error Correction Model
Author: Xiaoguang Lu, Yiran
Xi, Diqian Lu
Journal Code: jptindustrigg140053
