The Announcement Effect of Cash Dividend Changes on Share Prices: An Empirical Analysis of China

Abstract

An event study using a sample of cash dividend changes from all listed A-share firms in China during the period from 2000 to 2004 was conducted to investigate the announcement effect of cash dividend changes and examine whether the dividend-signaling hypothesis holds in China's stock markets. The results indicate that the announcement of cash dividend changes has a positive influence on share prices, but only partly support the dividend-signaling hypothesis. The study also found that there is no great dissimilarity between the announcement effects of cash dividend changes for different stock markets in China. However, the announcement effect of cash dividend changes for different sample periods exhibits distinct differences that may have a close connection with the promulgation and execution of two administrative rules. Cross-sectional analysis shows that both cash dividend yield and the ratio of nonfloating shares have explanatory power on the announcement effect of cash dividend changes.