Research On The Motivations And Consequences Of High Stock Dividend Of Gem Listed Companies

In recent years,the phenomenon of high stock dividend has been in full swing in China’s capital market,and many listed companies,especially the GEM companies tend to use high stock dividend to transmit the positive signals of strong profitability and good development prospects,and the small and medium investors also have a fascination for those companies that implement high stock dividend policy.The essence of high stock dividend is simply to transfer undistributed profits and capital reserves to equity,and the most direct result is the expansion of equity scale,which will not have any impact on shareholders’ equity.But in the middle or at the end of each year,there are still many listed companies keen to release high stock dividend policy,and even some companies still transfer shares to their shareholders in large proportions in the absence of performance support.Such visions have drawn widespread attention from the regulators and the small and medium investors.Therefore,the real motive behind high stock dividend is worthy of further investigation.This paper takes high stock dividend policy of East Group as research subject and adopts case study method to introduce and analyze the process of high stock dividend,employee stock ownership plan(ESOP),reduction and cash out process of the actual controller,and tries to find out the possible motivation behind high stock dividend by judging whether it satisfies the implementation conditions of high stock dividend.First of all,this paper analyzes the conditions of carrying out high stock dividend from three aspects: the ability of transferring stock,profit and growth.According to the implementation standard of "three high and one low" used by previous scholars,that is to say,capital reserve per share,undistributed profit per share and net assets per share are high,but share capital scale is low,we can judge whether it has the ability of transferring shares or not.Through horizontal comparison with average level of the 123 GEM companies that have implemented high stock dividend,it is found that the capital reserve per share,undistributed profit per share and net assets per share of East Group are lower than average level,but its equity size is higher than average index.Therefore,this company does not have a good ability to transfer shares.Additionally,the indicators of profitability and growth ability are lower than average level,indicating that East Group lacks space for development and the implementation of high stock dividend lacks performance support.Therefore,it is speculated that the high stock dividend policy should have other considerations.Secondly,through the analysis of the possible motivation for high stock dividend policy,this paper finds that the actual controller proposed high stock dividend is likely to be in line with the expiration of the ESOP.After the release of the ESOP restricted stock,the stock price was worrying,because most of funds for the ESOP came from the equity pledge of the controlling shareholder,and the controlling shareholder made a profit guarantee commitment to the participating employees,as a result,once the share price fall sharply,the controlling shareholder and the actual controller will lose a lot,so the actual controller has big motive to raise stock price,and thus realize the perfect exit of the ESOP.Those employees’ interests are guaranteed on the surface,but in fact that the actual controller gets the excess gains.In addition,this paper also finds that another bad motivation of high stock dividend is to realize arbitrage of the restricted stock before IPO by reducing holdings.In private companies with high concentration of ownership,the actual controller has absolute control of company and can make decision as he pleases.The interests of the actual controller and the major shareholders will tend to be consistent during the window period when the stocks before IPO are about to be released,and they will tend to conspire to manipulate stock price by using high stock dividends,thus to achieve their bad motives of high-level arbitrage.While the actual controller used others’ securities accounts to buy stocks before the disclosure date of high stock dividends,and then sold at a high price to earn the price difference,so the proposal of high stock dividend is more like a premeditated plan conducted by the actual controller to achieve the goal of arbitrage quickly in the short term.Therefore,the actual controller has the suspicion of insider trading and the motive of short-term trading.Thirdly,By studying the market reaction before and after the announcement date and ex-dividend date of high stock dividend,this paper finds that there is indeed excess return and accumulative excess return after the announcement date of high stock dividend,thus confirming the effect of high stock dividend on the improvement of stock price.However,the accumulated excess return basically disappeared before and after the ex-dividend date,which shows that high stock dividend can only cause a short positive effect.If the stock is bought and sold after the announcement day,the excess benefit may be obtained,but if the transaction is postponed to the ex-dividend date,the small and medium investors may be held up.It can be seen from the response of the regulators and the news media that high stock dividend under the bad motive has attracted extensive attention from the regulatory authorities and the news media,and that the regulators have severely cracked down on such illegal acts.And the negative news will inevitably have a negative impact on the company’s image.The majority of the small and medium investors should draw lessons from their past grieving experience of being infringed,and improve their own knowledge level and analytical ability.Combining with the company’s operating situation,profitability ability and growth level,the small and medium investors could comprehensively examine the rationality of high stock dividend scheme,polish their eyes,and plan for long-term investment.