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Heterogeneous dividend preferences of Chinese individual and institutional investors : Evidence from categorized daily share holding data

Xin Chen (Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai, China)
Lin Tang (Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai, China)
Haiou Hu (Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai, China)

China Finance Review International

ISSN: 2044-1398

Article publication date: 11 November 2014

Abstract

Purpose

The purpose of this paper is to examine preferences of Chinese individual and institutional investors to cash dividends and stock dividends. Using categorized daily holding information from the TOPVIEW database, the authors test how percentage holdings of individuals and institutional investors change, respectively, around annual report dates and registration dates.

Design/methodology/approach

The results show that individuals and institutional investors often express heterogeneous preferences to dividends. After controlling for firm size and market performance, the authors find that the higher the ratio of stock dividend is, the more likely institutional investors will increase their overall holdings of the stock-dividend-paying firm in the week after annual report date, but they do not prefer to do so around registration dates. Meanwhile, the higher the ratio of stock dividend is, the more likely individual investors will increase their overall holdings of the stock-dividend-paying firm in the week before registration date, but do not prefer to do so after annual report dates. Such patterns do not exist for cash-dividend-paying firms.

Findings

The results imply that different types of investors chase high stock-dividend-paying firms at different stages of dividend events. The findings are consistent with the hypothesis of “price illusion,” but do not lend support to the signaling hypothesis of stock dividends.

Originality/value

This paper uses categorized data of daily share holdings to test how different types of minority shareholders respond to stock dividends and cash dividends for the first time. It sheds lights on the on-going academic debate about the “stock dividend puzzle” in China.

Keywords

Acknowledgements

JEL Classifications — G14, G35, C35

Citation

Chen, X., Tang, L. and Hu, H. (2014), "Heterogeneous dividend preferences of Chinese individual and institutional investors : Evidence from categorized daily share holding data", China Finance Review International, Vol. 4 No. 4, pp. 326-342. https://doi.org/10.1108/CFRI-11-2012-0107

Publisher

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Emerald Group Publishing Limited

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