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The stock market reaction to dividend reductions and omissions: evidence from China

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posted on 2023-01-18, 15:56 authored by Jing Dong
Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Master of Economics to the School of Business, Faculty of Business, Economics and Law, La Trobe University, Bundoora.

This paper investigates the Chinese stock market reaction to the announcements of dividend reductions and omission. Previous domestic Chinese researches document that the Chinese stock market shows little reaction to cash dividend announcement, whereas the stock market reaction to dividend reductions and omission draws little attention in China. We have identified some problems in the previous Chinese studies. Firstly, the sample periods of these studies are typically too short, which make the results unreliable. Secondly, most of the studies use a short time period to calculate the abnormal returns that may be driven by the investors trading before the dividend date. Finally, most of these researches do not take into consideration the effect of other important information released with the dividend announcements at the same time. To address these issues, we firstly use the data over a period of 20 years starting from 1990-the year that the Chinese stock market starts trading to 2009. Secondly, we employ a similar methodology by Liu, Szewczyk, and Zantout (2008) and perform a rolling portfolio approach and use the Fama-French 3-factor model to calculate the post-announcement long-term abnormal returns. Thirdly, we use the matching method and the subsample tests to examine the robustness of the dividend announcement drift. After controlling for firm size, the unexpected earnings and government ownership, we find no evidence of the dividend announcement drift in China. We also show the important factors that affect the long-term abnormal return through the cross-sectional test.


Center or Department

Faculty of Business, Economics and Law. School of Business.

Thesis type

  • Masters

Awarding institution

La Trobe University

Year Awarded


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