Essays on corporate dividend policy: Chinese evidence

The thesis examines the dividend puzzle in the context of the Chinese capital market and further investigates the factors that significantly affect dividend policy in Chinese listed firms. In Chapter two, we examine the announcement effects of dividends in the Chinese capital market, with an emphasis on stock dividends. We begin by separately investigating the cumulative abnormal returns around the announcements of cash, stock and combined dividends. Because earnings are announced concurrently with dividend decisions in China, and therefore the estimated abnormal returns could be confounded by the earnings effect, we attempt to examine the dividend announcement effect under different earnings signals. We find a strong announcement effect of stock dividends even after controlling for concurrent earnings surprises. In contrast, pure cash dividend stocks experience no significant price run-up around the announcements. In addition, we examine the difference in market reactions to a positive or negative earnings announcement as firms initiate, maintain or switch to different forms of payouts. It appears that switching from other types of dividends to stock dividends reinforces the earnings signal. Chapter three examines the effect of corporate governance and stock liquidity on corporate payout policy in the context of the split-share structure reform initiated in China in 2005. Under this reform, non-tradable shares were compulsorily converted into tradable shares. The reform removed a liquidity constraint; it also facilitated better alignment of the interests of controlling shareholders with those of outside investors. These changes led to significant improvements in firms’ share liquidity and governance. We investigate the implications of share reform-induced governance and liquidity improvements for corporate dividend policy. First, we examine how listed firms’ dividend policy responds to a governance and liquidity shock (i.e., the split-share structure reform) by comparing corporate dividend policy before and after the reform. Second, we explore the channels through which the reform affects corporate dividend policy by considering the effect of corporate governance and stock liquidity. We find that the average cash dividend payout decreases in the post-reform period and that the reduction in cash payouts is more pronounced among firms with higher growth rates and higher liquidity. Given the fundamental difference in controlling shareholders between state-controlled and privately controlled firms, the reduction in cash payouts appears to be more substantial in state-controlled firms. Our results are robust to different time horizons surrounding the reform. We also investigate whether the reform affects the decisions of firms to pay cash dividends. The results indicate that the propensity to pay cash dividends significantly decreases after the reform. Furthermore, the post-reform period features a decrease in the probability of initiating a cash dividend and a greater likelihood of firms omitting cash dividends. In addition, firms tend to pay a lower level of dividends in the post-reform period when they maintain dividend payments. In Chapter four, we investigate how a shock to financing capacity affects listed firms’ dividend decisions in China, with a focus on financially constrained firms. In particular, we examine the change in firms’ propensity to pay cash dividends and the change in the dividend payout ratio after a mandatory regulation on financing qualification was released in 2008. As the regulation mandatorily associates dividend payment with firms’ external financing qualification, it can be regarded as a negative shock to firms’ financing capacity. Measuring financial constraints using a synthetic Whited and Wu (2006) index, we observe that the regulation alters the relationship between financial constraints and dividend policy. Before the regulation, constrained firms are less likely to pay cash dividends than unconstrained firms; when these firms do pay dividends, they tend to pay lower dividends. However, this pattern reverses after the regulation comes into effect. Financially constrained firms become more willing to pay cash dividends than are unconstrained firms, and they also pay higher dividends in relative terms. Furthermore, we find that the behavior of financially constrained firms differs from that of unconstrained firms when affected by the shock to financing capacity. Constrained firms display a larger post-regulation increase in the propensity to pay cash dividends and a smaller post-regulation reduction in cash dividend payout ratios. We argue that the increased use of dividends among constrained firms is driven by the desire to enhance public financing capacity. Our results confirm this conjecture by demonstrating that financing activities in the post-regulation period are concentrated in constrained firms that qualify for public financing

Household life-cycle asset allocation and background risk of labor income

Purpose – The purpose of this paper is to empirically analyze the relationship between risky asset allocation and background risk of Chinese residents. Design/methodology/approach – Using Chinese macroeconomic data, this study uses numerical method to solve dynamic stochastic optimal problem. Findings – When risk of labor income is considered, ratio of risky asset declines with rising of age for those people with same age and wealth state; any of the following situations will lead to lower risky assets holdings: lower labor income growth expectations, higher labor income risk or higher labor and financial market covariance risk. Research limitations/implications – This study uses real economy investment return as a proxy of risky asset return. Practical implications – Residents with higher background risks should hold less risky assets, and overcome home-bias problem during asset allocation. Originality/value – This study takes two kinds of background risk into consideration: labor income risk, and covariance between labor income and risk asset

Do Heterogeneous Background Risks Matterto Household Asset Allocation?

This paper extends the literature reviews of Curcuru et al. (2009, Handbook of Financial Econometrics, Elsevier Science, Amsterdam), on the heterogeneity of background risk during investment into the following categories: income from labor and entreprene

The Chinese stock dividend puzzle

In this paper, we examine the announcement effects of dividends with an emphasis on stock dividends in China's capital market. We find that dividend-paying stocks exhibit significantly positive abnormal returns while non-dividend-paying stocks show a negative announcement effect. Further, we document that the cumulative abnormal returns for pure stock dividends and combined dividends are the main drivers of this announcement effect. In contrast, pure cash dividend stocks experience no significant price run-up before announcement. The significant announcement effect of stock dividends is robust to controlling the earnings surprise effect. We offer some discussion of the possible explanations

Stock holdings over the life cycle: Who hesitates to join the market?

In this paper, we study the empirical relationship between age and individual wealth held in stocks, focusing on the heterogeneity of risk-taking over the life cycle in the population. We use micro-data and nonparametric quantile regression to argue that there is a pronounced life cycle pattern of risk-taking for households, which is conditional upon ownership. Specifically, we show that the fraction of stock investment decreases to bottom significantly in midlife and increases afterwards, contradicting the popular evidence claiming a hump-shaped pattern. The pressure of large financial obligations during middle age may be the reason for the crowding out of stock market risk-taking and could induce low capital returns for households

PDE4DIP contributes to colorectal cancer growth and chemoresistance through modulation of the NF1/RAS signaling axis

Abstract Phosphodiesterase 4D interacting protein (PDE4DIP) is a centrosome/Golgi protein associated with cyclic nucleotide phosphodiesterases. PDE4DIP is commonly mutated in human cancers, and its alteration in mice leads to a predisposition to intestinal cancer. However, the biological function of PDE4DIP in human cancer remains obscure. Here, we report for the first time the oncogenic role of PDE4DIP in colorectal cancer (CRC) growth and adaptive MEK inhibitor (MEKi) resistance. We show that the expression of PDE4DIP is upregulated in CRC tissues and associated with the clinical characteristics and poor prognosis of CRC patients. Knockdown of PDE4DIP impairs the growth of KRAS-mutant CRC cells by inhibiting the core RAS signaling pathway. PDE4DIP plays an essential role in the full activation of oncogenic RAS/ERK signaling by suppressing the expression of the RAS GTPase-activating protein (RasGAP) neurofibromin (NF1). Mechanistically, PDE4DIP promotes the recruitment of PLCγ/PKCε to the Golgi apparatus, leading to constitutive activation of PKCε, which triggers the degradation of NF1. Upregulation of PDE4DIP results in adaptive MEKi resistance in KRAS-mutant CRC by reactivating the RAS/ERK pathway. Our work reveals a novel functional link between PDE4DIP and NF1/RAS signal transduction and suggests that targeting PDE4DIP is a promising therapeutic strategy for KRAS-mutant CRC