Why Do Firms Pay Stock Dividends: Is it Just a Stock Split? by Xi He, Mingsheng Li, Jing Shi, Garry Twite :: SSRN:
"This paper examines why firms choose to pay stock dividends. Using a sample of listed Chinese firms, we find that younger, more profitable firms, with lower leverage, high levels of retained earnings, private ownership prior to listing, investing more in fixed assets and operating in regions with lower shareholder protection are more likely to pay stock dividends. Consistent with stock dividends substituting for stock splits, our evidence indicates that the initiation of a stock dividend is associated with a significant positive market reaction and increased analyst following, suggesting that firms use stock dividends to attract analysts’ attention. In addition, the positive announcement effect for stock dividends increases with the size of the split factor, suggesting that management making use of stock dividends to keep the firm’s stock price within its acceptable trading range."