An empirical study of the relationship between corporate dividend policy and financial performance of chinese listed companies

Abstract

A lot of empirical studies have been done on corporate dividend policy using firm-data, mostly for the US but seldom for emerging markets. In China, corporate dividend policy is still a new phenomenon. Based on the Signaling Theory (Lintner, 1956), two models are established to examine the relationship between corporate dividend policy and financial performance of Chinese listed companies. Sample data are from CSI 300 Index, which is representative because it includes most large companies in all sectors in China. By employing the method of analysis of variance (ANOVA), this study finds a significant positive relationship exists between dividends per share and financial performance. Chinese listed companies' dividend policies have strong effects on their share prices, while the market has little reflection on cash dividend, and bonus share is more popular in market than cash bonus. The results suggest that corporate management should consider the interests of the company and its shareholders as well when paying dividends. Cash or stock dividends payout should be in the principle of the company's sound development.