Dividend preference of tradable-share and non-tradable-share holders in Mainland China

Comprehensive data on corporate announcements of Chinese firms allows us to examine the preference for, and determinants of, cash and stock dividends. The results indicate that Chinese public investors prefer stock dividends over cash dividends, which are preferred by large state and legal person shareholders generally. Stock dividends, which do not require an explicit cash outflow from a firm, are found to be positively related to higher earnings, supporting the signalling hypothesis of dividend policy. In an imperfect market, these results have some implications for government regulation of financial markets.