The Love for Stock Dividends: Chinese Evidence

This paper examines the announcement effects of dividends with an emphasis on stock dividends in the Chinese capital market. We find that dividend paying stocks exhibit significantly positive abnormal returns while non-dividend paying stocks show a negative announcement effect. Further, we document that the cumulative abnormal returns for the pure stock dividends and the combined dividends are the main drivers of this announcement effect. In contrast, pure cash dividend stocks experience no significant price run-up before announcement. The significant announcement effect of stock dividends is robust to the controlling of the effect of earnings surprise. We offer some discussion of the possible explanations of the puzzle.