A-share Listed Company's Management Profit Forecasts And Cash Dividend Distribution

Management earnings forecast and cash dividends are commonly considered two of the most important conduit by which managers of listed companies communicate information with the market. Traditional positive researches emphasize testing the strength of the said signals. However, in this article, we try to put two commonly ignored questions to the test. First, if such signals exist, then what's the significance to investors, and how will they avail themselves to the signals. Second, since CSRC requires refinancing companies to meet a minimum requirement of past cash dividends, we would test that if such regulatory requirements would somewhat distort the signals themselves and investment strategies involving those signals.We attempt to study the first question by forming sample investment portfolios according to different measurements of earnings forecast and cash dividend, and then compare the investment results. For the second question, we try to develop a mechanism to identify those companies suspected of using cash dividend as a means to qualify themselves for refinancing.Our findings indicate that high earnings forecast is a good indicator for superior investment performance, however cash dividend is of no obvious use to investors. Incidentally, we find that regulatory requirement of cash dividend not only didn't distort the signal of cash dividend, since there are no such signals to begin with, but it somehow becomes a valuable indicator that allows investors to optimize the high earnings forecast investment strategy. Our conclusion supports the suggestion that stock performance on Chinese stock market is still being governed by the "attic in the air" investment theory.