In China, dividends could be delivered in roughly four approaches: cash dividend, stock dividend, property dividend and dividend for building industry. Property dividend is paid out by company’s property other than cash. In terms of dividend for building industry, it generate from the funds raised by companies. This particular form is particularly suitable for the companies with relatively long business circle, high risks and low rate of turnovers. However, China’s law of cooperation clearly regulate that companies should pay dividends in either cash or stock. Therefore, the companies that paying property dividend and building industry dividend are very rare. Consequently, these companies are neglected in this research and the cash and stock dividend are focused.
In spite of the stock dividend’s dilution effect on future earnings per share, a high proportion, namely 34.46% of China listed companies paid stock dividends during years between 1993 and 2006. There were several reasons for the specific phenomenon in China stock markets. Firstly, the substitute of stock dividend: stock splits were prohibited (Wei & Xiao, 2009). Furthermore, prior researches revealed remarkable share price increase on the stock announcement and the ex-issue date. More importantly, the strong public investment demand could be partially met by the issuing of the stock dividend as previously band saving and limited government bonds were the only available approaches for individual investment.
Unlike Russia, China adopts the experimental and gradual reform approach on economy. In the early stage of socialism market economy, the state still retained a large proportion of ownership of most leading firms. This unique characteristic of China’s economy lead to the two main features for listed firms: the state’s dominating governance in capital structure and the large percent of shares which are not publicly tradable (ibid). However, in recent years, the state has been releasing the strict control and absolute dominating ownership over the firms except for the industries like national security, infrastructure, energy, etc. Therefore, it is necessary to take an up to date look at the whole picture of the dividend payment situation in China before going into depth to analyze the dividend policy determinants.
2. Different dividend payment approaches
Figure 1
Source: CSMAR Database
Figure 1 depicts in the whole stock markets what percentage of listed companies in China paid dividends in forms of cash or stock from 2005 to 2010. From 2005 to 2010, the percentage of dividend paying companies is stably increasing from about 45 % to over 60%. It should be mentioned that paying cash dividend and stock dividend are not mutually exclusive choices. In other words, there existed a small number of companies paying cash and stock dividends simultaneously. Despite of the growing trend of the dividend delivering companies, there were still large amount of companies did not pay dividends in comparison with western countries.
It could be seen that the dominating method of dividend payment is cash, for which almost 80% to 90% dividend paying companies adopt. In addition, the percentage of cash dividend paying companies to the total listed firms has been gradually growing from over 40% to 60%
The percentage of companies with stock dividend slightly fluctuated between 5% and 10% during the six years. Moreover, along with the process of perfecting the legislation system, improving stock market mechanism and reforming the ownership structure for Chinese SOEs, there will be further decreasing trend for the number of companies with stock dividend payment. Therefore, in the subsequent researches, the insignificant factor stock dividend payouts are not considered.
Table 1 Dividend per Share for All Companies with Cash Dividends
| Mean | StdDev | min | max | |
| 2005 | 0.146077 | 0.131376 | 0.002496 | 1 |
| 2006 | 0.154755 | 0.170447 | 0.002624 | 3 |
| 2007 | 0.160691 | 0.174055 | 0.002862 | 2 |
| 2008 | 0.147884 | 0.176897 | 0.000732 | 2 |
| 2009 | 0.165279 | 0.16697 | 0.004395 | 1.36799 |
| 2010 | 0.194508 | 0.204392 | 0.005774 | 2.3 |
Source: CSMAR Database
Table 1 summarizes the descriptive statistics figures for all the companies with cash dividends from the time interval from 2005 to 2010. The time series figure of the mean indicate the overall increasing trend for the average amounts of cash dividend paid out. It should be noticed that the mean of dividend per share suddenly surged from 0.165 to approximately 0,195 during the period between 2009 and 2010. With regard to the standard deviation, it roughly corresponds with the increase with mean. From 2009 to 2010, there was also an extraordinary soar of standard deviation, which suggested the cash dividend amounts among different firms varied to a larger extent. One possible explanation for the jump could be that there was a significant progress of companies’ structural reform, in which government and state withdrew their shares and turned the non-tradable public shares to tradable. In terms of the minimum cash dividend per share, except for the abnormal low level in 2008, the overall trend was consistent with the former two. The maximum cash dividend for the six years dispersed in the range from 1 to 3.
3. Dividend payments across different industries
Because the industry factors are not quantitative variables, it cannot be included in the econometric analysis of dividend policy determinants. Studying each industry separately, the statistical results of the number of firms with dividend distribution as well as the average amount of dividend per share could be indicative to get an insight on the industrial influence on the dividend policy.
Figure 2
Source: CSMAR Database
The above figure captures the proportion of cash dividend paying firms in six main industries for listed companies. The result shows that percentages of firms with cash dividends for all of the six industries have been continuously increasing during the six observing years. It is obvious that the percentage for financial sector grew most dramatically from about 40% to nearly 85%. The firms in public utilities industry had the second highest dividend distribution ratio and the stable figure rose from 60% to 70% in six years’ period. Real estate has been the industry in which least firms delivered cash dividends. However, the ratio has dramatically increased from 30% to 50%.
Figure 3
Source: CSMAR Database
Figure 3 is concerned with the average level of dividend payment amount. The overall trend of dividend per share is relatively stable with the exception of the fluctuations during the financial period from 2009 to 2010. In addition, the industrial difference between the average dividends per share is insignificant and majority of them staying at the level around 0.15. Like the previous statistical result, finance industry was the most unstable one that surged from 0.09 in 2005 to over 0.22 in 2009 and it became the only industry dropped dramatically during 2009 and 2010. Another consistence with Figure 2 is that firms in real estate industry generally distribute a low level of dividends. Nevertheless, the accountability of Figure 3 is weaker compared with Figure 2 since the difference between industries are relatively insignificant and all the figures fluctuate constantly within a small range.
Some existing literatures suggested that dividend policies have obvious industrial characteristics. In specific, mature industry and public service industry normally have higher dividend payout ratio. However, the results discussed above do not support this argument. Li Ping (2003) argued the dividend policy was related to the controlling level of industries, which might be consistent with the above results because real estate is a highly controlled industry due to its crazy booming in China and in contrast restrictions in finance area was being gradually released to a further extent in the period.
However, it could be reasonable to argue that industry factor is not a critical or independent determinant of dividend policies. The industrial influences on dividend could be interpreted as the results of the intrinsic industrial characteristics. For example, if business risk is the main determinant of dividend and the risks vary significantly between different industries, in this case it is extremely difficult to tell which specific factor affects the dependent variable.