Stock Dividends and Private Placement: From a Perspective of Market Value Management

Abstract

Stock dividends and private placement are two popular corporate financial policies in Chinese A-share stock market. This paper aims to investigate the intrinsic connection between stock dividends and private placement and their economic logic from a perspective of market value management. It arrives at the following conclusions:firstly, firms issuing private placement are more likely to pay more stock dividends than matched non-issue firms, and the differences in stock dividends before issuing is more pronounced than the ones after issuing; secondly, in particular, the proportion and scale of paying stock dividends among private placement with external institutional investors are much larger than those among other types of private placement; thirdly, stock dividends can affect offering pricing discount significantly and the discount of seasoned offering prices for firms paying stock dividends after issuance is lower than their counterparts. It shows that stock dividends are a popular tool for market value management taken by firms issuing private placement in A-share stock market. The scale and timing of stock dividends are the results of the rational game between firms and external institutional investors. It not only provides evidence for higher-level stock dividends of listed companies in Chinese capital market from a perspective of market value management, but also is of great reference value to policies related to stock dividends and private placement formulated by regulatory authorities.