Cash Dividend Behaviors around Private Placements in China: Interactions between Two Information-Releasing Events

We investigate the information role and the information interaction of cash dividends around equity private placements for China’s publicly listed firms from 2004 to 2019. Our results show that firms are more likely to allocate higher cash dividends when private placements are nearer, possibly to build a favorable information environment for subsequent equity refinancing. Using a propensity score matching (PSM) approach, the results show that firms usually do not increase cash dividends for the compensation of illiquidity in the lockup period following private placement. The persistently low cash dividends after the lockup period rule out the suspicion of tunneling (via excessive payouts) resulted by private placements. In the meantime, we find that private placements positively affect firm performance. This could be why managers find conveying information via dividends redundant. We also find that announcement returns for cash dividends paid by firms with private placements are higher compared to their peers.