Dividend smoothing and firm value: Evidence from Chinese firms

Dividend smoothing is one of the most well-documented stylized fact in corporate financial policy. However, little is known about Chinese stock market. In this paper, we develop new insights about the dynamic of corporate dividend policy in China by using panel data covering the period of 2002-2011. We estimate partial adjustment model and report two major findings. First, a test of the Lintner model reveals that the extent of dividend smoothing of continuously paying dividends firms is significant. This suggests that Chinese firms have a target dividend payout ratio with rate of adjustment. Second, dividend smoothing is positively correlated with firm value. Overall, our results suggest that firms following a stable dividend policy would have greater firm value than those not.