Preceding Dividend as a signal of Future Dividends: Evidence from Chinese Commercial Banks

Abstract

Dividend policy is a prime concern of all stakeholders for it represents major cash outflow. There are two major underlying considerations for present study; first, academicians have spent more than five decades now and used various theoretical and empirical models to explore and study nature of determinants of dividend policy; but the issue is yet unresolved and open for further discussion. Second, majority of extant studies used data from developed economies to understand dividend myth. In addition, from available studies, the study on dividend policy of non-financial sector takes large area in pie. The present study is based on model after considering all factors to address dividend policy of commercial banks in emerging markets. Secondary data is used for statistical analysis the empirical results indicate significant relationship of provisioning against non-performing loans (LNPNPL), total assets (LNTA) and return on assets (ROA) on dividend payout ratio. LNPNPL significantly and negatively causes dividend policy, this indicates that banks with higher level of risk pay less dividends. Similarly, ROA significantly and positively explains variations in dividend payout ratio. The positive relationship tells that banks with higher returns (profitable banks) pay higher dividends. The negative and significant relation (causal) between LNTA and dividend payout indicates that Chines banks pay less dividends as they grow bigger in size. Other variables of model indicate insignificant relationships. Findings support existing literature but the size of bank has significant but inverse relationship with dividend policy. The findings are instrumental for investors aspiring for dividend income.