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Wealth effects of dividend regulation: Evidence from China

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  • Chao Kevin Li

Abstract

By exploring a natural experiment where the Chinese regulatory body introduced a dividend regulatory change in 2012, this article investigates the wealth effects of dividend regulation which increases firms’ dividends. I find that firms’ share price reacted positively (negatively) to regulatory events increasing (decreasing) investors’ expectation of dividends. The effects are more pronounced for firms with low dividends or domiciled in weak legal environments, robust to different research designs. The findings are consistent with the notion that low dividends in China are a manifestation of implicit contract failure. Dividend regulation provides remedies to low investor protection arising from weak legal environments. JEL Classification: G14, G35, G38, K22

Suggested Citation

  • Chao Kevin Li, 2021. "Wealth effects of dividend regulation: Evidence from China," Australian Journal of Management, Australian School of Business, vol. 46(2), pages 197-223, May.
    • Handle: RePEc:sae:ausman:v:46:y:2021:i:2:p:197-223
    DOI: 10.1177/0312896220935947
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    More about this item

    Keywords

    Contract failure; dividend regulation; emerging markets; implicit contract; stock price reaction;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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