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The Dividend Initiation Decisions
Of Newly Listed Companies in Hong Kong:
Does Dividend Initiation Signal Firm Prosperity?
BY
CAI BIJIA
10050191
Major in Applied Economics
An Honours Degree Project Submitted to the School of Business
In Partial Fulfillment of the Graduation Requirement for the
Degree of Bachelor of Business Administration (Honours)
Hong Kong Baptist University
April 2013
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Table of Contents
I. ABSTRACT.................................................................................................................................................. 3
II. INTRODUCTION ........................................................................................................................................ 3
III. LITERATURE REVIEW ............................................................................................................................. 4
A. Signaling Theory ........................................................................................................................................ 4
B. Dividend Initiation...................................................................................................................................... 5
IV. DATA, SAMPLE SELECTION AND PARAMETER DEFINITION......................................................... 6
A. Data Sources ............................................................................................................................................... 6
B. Sample Selection......................................................................................................................................... 7
C. Parameter Definitions ................................................................................................................................. 7
Profitability - ROA ...................................................................................................................................... 7
Risk – Debt/Equity ratio .............................................................................................................................. 8
Current Assets ............................................................................................................................................. 8
D. Hypothesis and Contribution ...................................................................................................................... 8
V. FINDINGS AND ANALYSIS...................................................................................................................... 9
Dividend Initiation and Firm Performance...................................................................................................... 9
Changes in Return on Assets (ROA)............................................................................................................ 9
Changes in Debt/Equity Ratio ................................................................................................................... 10
Changes in Current Assets ........................................................................................................................ 10
Policy Implications........................................................................................................................................ 11
VI. LIMITATION OF THE RESEARCH ........................................................................................................11
Short Research Period ...................................................................................................................................11
Simplified Methodology................................................................................................................................11
VII. REFERENCE LIST ...................................................................................................................................12
VIII. RELEVANT DATA SOURCES ..............................................................................................................14
IX. APPENDIX.................................................................................................................................................15
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I. ABSTRACT
The paper intends to answer how dividend initiations (DI) affect profitability and risk of
newly listed companies in the context of Hong Kong. The methodology adopted here is to
evaluate a firm’s performance after DI using the changes in ROA, debt/equity ratio and
current assets. Listing data and the above mentioned parameters of 153 dividend-initiating
newly listed firms were obtained from various stock websites. Contrary to the traditional
dividend signaling theory implications, the hypothesis established in this paper is that we will
be able to observe the following three phenomena: 1) a drop in profitability, 2) a rise in risk,
and 3) a decrease in cash level. As expected, I do observe profitability decline and risk
increment. However, cash level does not go down in general in the context of Hong Kong,
which is different from empirical results from other countries. The reasons of these
phenomena are carefully studied by theories and intuition. The drop in profitability is due to
the loss of profitable investment opportunities while the risk increase is due to managers’
wish to boost earnings through debt borrowing. Cash level rise in the empirical results
implies that companies are eager to expand in development stage.
II. INTRODUCTION
In the world of corporate finance, dividend can be regarded as one of the most troublesome
topics. The literature on dividend policy is massive and covers extensive aspects. Many
economists commented that DI is a milestone in a firm’s life cycle. The Nobel Prize laureate
Michael Spence argues that managers have some nonpublic information about company’s
investment opportunities and use dividends as a signaling tool to convey this message. However,
empirical studies tend not to support the same conclusion. Rather, Sharma(2001) brought
forward a hypothesis that manager’s decision to initiate dividends does not depend on confidence
in future earnings but due to past performance. In other words, companies’ decision to initiate
dividends does not signal future earnings or a drop in risk. In order to test this hypothesis, I do
the similar study in Hong Kong.
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I track the dividend initiation (DI) decisions from a sample of 263 firms that went public in
Hong Kong Stock Exchange (HKSE) during the period 2010-2012 and find that 153 of them
initiated dividends. The sample is hence the 153 firms that have initiated dividends. The main
purpose of this paper is to analyze how DI decisions affect firm performance in terms of
profitability and risk in Hong Kong. Among the variables suggested by Sharma (2001), I
carefully select several parameters that can demonstrate profitability and risk. The return on
assets (ROA) percentage shows how profitable a company's assets are in generating revenue
(Needles, B. E. (1999)) thus is a good proxy for profitability. Debt/equity ratio measures
financial risk. Lastly, current assets are examined to show how the source of dividend payout is
affected.
III. LITERATURE REVIEW
Paper of Brav, Graham, Harvey and Michaely (2005) revealed that dividends are less
preferred compared to share repurchases due to the inflexibility of dividend policy. It is not
surprising to imply that the decision to initiate dividends must have gone through deliberation.
A. Signaling Theory
Talking about signaling theory, one cannot fail to mention Miller and Modigliani (1961) who
suggested that dividends or any kind of financing have no effect on the value of the firm
provided that there is no taxes, agency costs, asymmetric information, etc. As Miller and Scholes
(1978) subsequently demonstrate, under U.S tax code, this result may survive even if there is
differential taxation of dividends and capital gains. Lintner (1956) also addresses that managers
take future earnings into consideration when establishing dividend policies. In this reasoning,
whenever dividends as in indicator of future earnings change, investors should believe that
dividends carry some insider information.
Ever since Miller and Modigliani put forward the construct, signaling model was
established and perfected by some other theories. Bhattacharya (1979), John and Williams (1985)
and Miller and Rock (1985) are three important contributors in this model development. John
and Williams (JW) (1985) identified a signaling equilibrium with taxable dividends. In
equilibrium, insiders in firms with truly more valuable future cash inflows distribute larger
dividends and receive higher prices for their stock whenever the demand for cash by both their
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firm and its current stockholders (I+L) exceeds its internal supply of cash (C). In other words,
whenever C<I+L, a firm pays dividends. We can predict that a cash-rich firm may not initiate
dividends (C>I+L) while a cash-poor firm will opt for dividends (C<I+L). Under the
assumption of asymmetric information, Miller and Rock (1985) find that a consistent signaling
equilibrium can retain the time consistency of investment policy, but leads to lower levels of
investment than the optimal level under full information.
The model implies that dividend policy signify future prospects and therefore will
enhance firm performance, including profitability, revenue and growth rate. Hence, there should
be a positive relationship between dividends and profitability, dividends and stock price reaction.
Nevertheless, empirical evidence of signaling theory has not been convincing. Research of
watts (1973) and Gonedes (1978) show a weak relation between earnings and dividend decreases.
Penman (1983) concludes that “not all information in earnings forecasts is available in dividend
announcements” and “many firms do not adjust their dividends to the level of earnings implied
by the earnings forecast and so, for these firms with a relatively low adjustment of dividends, the
dividend announcement does not predict firms' values as well as the earnings forecast.”
B. Dividend Initiation
Research of Asquith and Mullins (1983) shows that: “For this sample of firms, initiating
dividends increases shareholders' wealth. The same is true of subsequent dividend increases.
Incorporating the effects of the magnitude of dividends and investors' anticipation of subsequent
increases, the wealth effect of subsequent dividend increases appears to be as large if not larger
than the effect of initiation.”
Healy and Palepu (1988) discovered that firms initiating dividend payments experienced
rapidly increasing earnings both prior to the first dividend and for two years afterwards. They
also found some evidence consistent with the dividend signaling hypothesis in that firms
initiating dividends experienced significant earnings growth in the two years following the
initiation. Interestingly, for firms omitting dividends, earnings also increase in the years after
omission.
Moreover, Lipson, Maquieira and Megginson(1998) find clear evidence that earnings
surprise are more likely to occur in initiators rather than non-initiators in the six years
surrounding initiation. John and Lang (1991) study insider trading around initiations and show
that the announcement effect is more prominent when insider trading occurred prior to the DI.
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Michaely, Thaler, and Womack (1995) find evidence of a long-term drift in stock prices
following initiations and omissions which is not explained by changes in yield or clienteles for
these stocks. Deshmukh (2003) studies a sample of firms that went public between 1990 and
1997 and finds that initiators are larger firms, with fewer growth opportunities and higher cash
flows than non-initiators. Grullon, G., R. Michaely and B. Swaminathan(2002) propose the
maturity hypothesis: it predicts that firms will pay dividends after they have reached the mature
stage of their life cycle, when they are encountered with higher cash flows, lower investment
opportunities and decreased risk. However, GMS intentionally exclude dividend initiations and
omissions from their empirical study, instead focusing on dividend changes; therefore they do
not test this prediction directly. Baker and Wurgler's(2004)(BW)"catering theory" states that
dividend-paying firms alter dividend policy in consideration of investor sentiment. BW measures
the dividend premium, i.e., the premium that investors are willing to pay for dividend paying
stocks, in different ways. They show that the premium is positively related to the aggregate
annual rate of initiation, continuation and payment of dividends by newly listed firms. Lie and Li
(2006) find support for the catering theory from a sample of firms that increased or decreased
dividends in the period of 1963 - 2000. They find that the dividend premium is positively related
to both the sign and the magnitude of changes in dividends, and that this relationship also is
manifested in the stock market reaction to the dividend changes. Kale, Kini and Payne (2012)
investigated the predictions of both JW (1985)-genre model and the ABW (2000) model.
The paper is organized as follows. I will elaborate data source, sample selection along
with parameters in the following section. Then, findings and analysis will be given based on the
empirical results. Lastly, limitations will be explained.
IV. DATA, SAMPLE SELECTION
AND PARAMETER DEFINITION
A. Data Sources
This paper analyzes the how DI decisions affect firm’s performance in terms of
profitability and risk. My sample targets at firms that were listed during 2010-2012 in Hong
Kong. I obtained the initial sample of 263 newly listed firms from Yahoo Finance, AAStocks
and TodayIR, of which 153 initiated dividends before the time being. The sample covers
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basically every industry: entertainment, restaurant, telecommunication, etc. I obtain the
following data from the above-mentioned websites:
listing date and DI date;
return on assets one year before and after the DI;
debt/equity ratio one year before and after the DI;
current assets one year before and after the DI
B. Sample Selection
Table 1 summarizes the firms that went public during 2010-2012 and those that initiated
dividends and the distribution.
Table 1
The Timing of the DI Decision by Firms Conducting IPOs(20102012)
Number of Dividend‐Initiating Firms in Each Year after the IPO Year
Year No. of IPO Total DI 0 1 2 3
2‐Jul‐05 101 73 10 51 11 1
3‐Jul‐05 100 65 17 48 N/A N/A
4‐Jul‐05 64 15 15 N/A N/A N/A
Totals 265 153 42 99 11 1
% DI 27% 65% 7% 1%
Column 4-7 of the table provide the breakdown of the DI decision, which is given
relative to the IPO year. 0 means that the firm initiates dividends in the same year in which it
goes public, 1 means that the firm initiates dividend in the next calendar year (for example, a
firm goes public in 2010 but pays out dividends in 2011), and so on. Table 1 suggests that firms
are most likely to initiate dividends in the next calendar year after going public (year 1, 65%).Of
the 265 newly listed firms, 42(27%) initiated dividends in the next calendar year while 99(65%)
firms initiated in the third calendar year.
C. Parameter Definitions
Since the focus is to evaluate the effect of DI on firm’s performance in terms of
profitability and risk, I use three parameters, namely ROA, debt/equity ratio and current assets.
Profitability ROA
Profitability is usually measured with Return on assets (ROA), which is:
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,
following methodology suggested by Barber and Lyons (1996). Since the focus is on how DI
affects ROA, the data of prior and after DI are obtained. After that, the change of ROA is
calculated to show the percentage change.
Risk – Debt/Equity ratio
Debt/equity ratio is a financial ratio indicating the relative proportion of shareholders'
equity and debt used to finance a company's assets, also known as leverage or risk (Peterson, P.
P., & Fabozzi, F. J. (1999)).
Current Assets
The formula of current assets is (Downes, J., & Goodman, J. E. (1998)):
Current assets have significant meaning in a firm. It provides funds that are ready to be
converted to cash in near term. But it is also easily exploited by managers and engender agency
costs.
D. Hypothesis and Contribution
The primary hypothesis in this paper is dividend initiation does not signal future earnings
of a firm. The motive of dividend initiation is the past performance of a firm, rather than the
manager’s expectation of future earnings. In essence, the research contradicts the implications of
signaling theory convey positive information about future firm performance.
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A model in signaling theory developed by Miller and Rock (1985) suggests that dividend
announcement convey information to the investors regarding future earnings prospects. Grullon
(2002) subsequently alleged that dividend increase signals a decrease in systematic risk.
In this study, however, I want to prove whether empirical studies run contrary to this
signaling theory in Hong Kong particularly.
The reasoning works as follows:
If dividend initiation does not signify future prosperity, we should be able to observe a
drop in profitability. Also, we might witness a rise in risk due to a rise in borrowings. Last but
not least, current assets should decrease after DI since the firms support their dividends with
excess cash and they aim to achieve a balance sheet with thinner current assets.
This study makes several contributions to the body of empirical literature: 1) I include all
firms going public in 2010-2012, which is representative and creates no bias to any industry; 2)
The research gap in DI in Hong Kong is partially filled by this study; 3) Short-term impact of DI
is focused on rather than long-term impact.
V. FINDINGS AND ANALYSIS
Dividend Initiation and Firm Performance
The empirical results suggest that subsequent to dividend initiation, firm profitability
trends down and financial risk ascends. In other words, firm’s performance has deteriorated
since the dividends are initiated. I will elaborate from the three ratios:
Changes in Return on Assets (ROA)
If the hypothesis that dividend initiation does not predict future earnings is correct, then
ROA is supposed to decrease after DI. Appendix 1 summarizes the ROA one year before and
after the DI decisions of 153 DI firms. While the absolute value carries barely any meaning,
change in percentage and the average change is calculated. It shows that ROA decreases from
14.711 to 10.235, rising a percentage of 25.51% in average. The median firm also demonstrates
similar pattern: its ROA declines from 11.68 to 8.54. It implies that for every dollar of asset, the
firm is earning $3 less after DI. Some research results support this finding. Farsio, F., Geary, A.,
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& Moser, J (2004) attributed the reason of decline to firms’ failure to catch some investment
opportunities due to dividend payout and thus suffer from earnings decline.
Changes in Debt/Equity Ratio
Changes in financial leverage reflect managers’ prospect toward company’s risk.
Managers may also opt to increase financial leverage due to low profitability. They may borrow
more debts and use excess funds in high-risk investments to maximize return. Leverage is
beneficial to company in that it avoids stock dilution and enjoys tax advantage. And actually, as
Bodie, Z., Kane, A., & Marcus, A. J. (2005) said, utilities industry with lots of debt are less risky
than unlevered firms such as technology companies. However, it is predictable that high level of
debt may drag a firm to default and bankruptcy in recession periods.
The hypothesis implies that DI will lead to an increase in financial leverage, making a
larger debt-equity ratio. Appendix 2 summarizes the debt-equity ratio one year before and after
DI. Again, percentage change and the average percentage change are calculated. It shows a rise
in financial leverage, from 37.49 to 44.57, which is consistent to the hypothesis. Also, the
median firm demonstrates an increase in debt-equity ratio, from 19.44 to 28.5.
Changes in Current Assets
Appendix 2 shows that current asset volume increases from 671,189,000 to 1,019,689
HKD, at a rate of 51.55%. This finding contradicts Sharma’s hypothesis. The existing empirical
research demonstrates that dividend payout is associated with lower cash levels. Grullon, G.,
Michaely, R., & Swaminathan, B. (2002) suggest that their results are consistent with the
exposition that dividend initiating firms generally have more idle funds and thus pay out
dividends to defray excess cash. It helps to alleviate agency problem and avoid over-investments.
Jensen (1986) states that agency costs arise from under- monitoring of managers and misuse of
cash. Firms that have large amount of cash are more likely to suffer from conflict of interests
between managers and shareholders. Thus, firms may choose to pay out dividends to reduce
excess cash and meanwhile prevent managers from misusing cash. In my research results, the
rise in current assets may result from the fact that the firms purchase more assets to support their
development in the early stages. Otherwise, the firms may not have distributed enough dividends
back to their shareholders.
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Policy Implications
As dividend initiation is announced, investors read it as a positive signal, most likely a
combination of expectation of continued high profitability and reduction in agency costs. As the
euphoria of the period around dividend initiation subsides, investors realize that the firms’
investment opportunities are shrinking and lower their expectations for earnings growth.
The results suggest that managers who intend to take advantage of DI to signal investors
to have faith in their companies may fail the goal. Due to the free flow of information, the drop
in profitability and rise in risk will eventually tell investors the real situation of the companies.
VI. LIMITATION OF THE RESEARCH
Short Research Period
Since the listing information in Hong Kong is extremely limited, especially those listed long
ago. Hence, I use the firms listed in the year 2010-2012 as sample, which is a small sample
derived from a short period. Although I mentioned that the focus is on short-term impact of
DI, but long-term impact is also worth studying. It can take stock fluctuation as an important
research parameters and study the trend of stock.
Simplified Methodology
Three variables are used in the research, namely ROA, debt/equity ratio and current assets.
Actually, there are more variables that can be included, for example, capital expenditures,
free cash flow, market abnormal returns and so on. The inclusion of these variables can
further consolidate the hypothesis. Furthermore, a more sophisticated model involving
regression and software mastery can be developed in further studies. It can reveal much more
information than ratio comparison used in this study.
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VII. REFERENCE LIST
Asquith, P., & Mullins, D. W. (1983). The Impact of Initiating Dividend Payments on
Shareholders' Wealth. The Journal of Business, 56(1), 77-96. Retrieved April 16, 2013, from
http://0-www.jstor.org.hkbulib.hkbu.edu.hk/stable/2352747
Baker, M., & Wurgler, J. (2004). A Catering Theory of Dividends. The Journal of Finance, 59(3),
1125-1165. Retrieved April 24, 2013, from the Wiley Online Library database.
Baker, M., & Wurgler, J. (2004). Appearing and disappearing dividends: The link to catering
incentives. Journal of Financial , 73(2), 271-288. Retrieved April 24, 2013, from the
ScienceDirect database.
Bhattacharya, S. (1979). Imperfect Information, Dividend Policy, and "The Bird in the Hand"
Fallacy. The Bell Journal of Economics, 10(1), 259-270. Retrieved April 15, 2013, from the
EconLit database.
Bodie, Z., Kane, A., & Marcus, A. J. (2005). Investments (6th ed.). Boston, Mass.: McGraw-Hill
Irwin.
Chew, L. (1996). Managing derivative risks: the use and abuse of leverage. Chichester: Wiley.
Downes, J., & Goodman, J. E. (1998). Dictionary of finance and investment terms (5th ed.).
Hauppauge, N.Y.: Barron's Educational Series.
Farsio, F., Geary, A., & Moser, J. (2004). THE RELATIONSHIP BETWEEN DIVIDENDS
AND EARNINGS. Journal for Economic Educators, 4(4). Retrieved April 16, 2013, from
http://capone.mtsu.edu/jee/pdf/farsio.pdf
Financial Leverage. (n.d.). Financial Analysis Software | Financial Analysis | Financial
Statements | Current Ratio | Financial Ratio | ReadyRatios.com. Retrieved April 15, 2013, from
http://www.readyratios.com/reference/debt/financial_leverage.html
Gonedes, Nicholas J.. "Corporate Signaling, External Accounting, and Capital Market
Equilibrium: Evidence on Dividends, Income, and Extraordinary Items." Journal of Accounting
Research 16.1 (1978): 26-79. JSTOR. Web. 16 Apr. 2013.
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Grullon, G., Michaely, R., & Swaminathan, B. (2002). Are Dividend Changes a Sign of Firm
Maturity?. The Journal of Business, 75(3), 387-424.
Grullon, Gustavo, Roni Michaely, Shlomo Benartzi, and Richard H. Thaler. "Dividend Changes
Do Not Signal Changes in Future Profitability." The Journal of Business 78.5 (2005): 1659-1682.
Chicago Journals. Web. 16 Apr. 2013.
Gwilym, O. a., Seaton, J., & Thomas, S. (2004). Dividend Cuts, Firm Profitability & Financial
Characteristics. n/a, N/A. Retrieved April 16, 2013, from
http://eprints.soton.ac.uk/35978/1/AF04-18.pdf
Healy, P. M., & Palepu, K. G. (1988). Earnings information conveyed by dividend initiation and
omissions. Journal of Financial Economics, 21(2), 149-176. Retrieved April 16, 2013, from
http://dspace.mit.edu/bitstream/handle/1721.1/47298/earningsinformat00heal.pdf?sequence=1
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The
American Economic Review, 76(2), 323-329. Retrieved April 16, 2013, from http://0-
www.jstor.org.hkbulib.hkbu.edu.hk/stable/1818789
John, K., & Williams, J. (1985). Dividends, Dilution, and Taxes: A Signalling Equilibrium. The
Journal of Finance, 40(4), 1053-1070. Retrieved April 15, 2013, from http://0-
www.jstor.org.hkbulib.hkbu.edu.hk/stable/2328394
Kale, Jayant R, Omesh Kini, and Janet D. Payne. "The Dividend Initiation Decision of Newly
Public Firms: Some Evidence on Signaling with Dividends." journal of financial and quantitative
analysis 47.2 (2012): 1-68. Cambridge Journal. Web. 15 Apr. 2013.
Li, W., & Lie, E. (2006). Dividend changes and catering incentives. Journal of Financial
Economics, 80(2), 293-308. Retrieved April 24, 2013, from the Sciverse database.
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings,
and taxes. The American Economic Review, 46(2), 97-113. Retrieved April 16, 2013, from
http://0-www.jstor.org.hkbulib.hkbu.edu.hk/stable/1910664
Lipson, M. L., Maquieira, C. P., & Megginson, W. (1998). Dividend Initiations and Earnings
Surprises. Financial Management, 27(3), 36-45. Retrieved April 24, 2013, from the JSTOR
database.
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Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares.
Journal of Business, 34(4), 411-433. Retrieved April 15, 2013, from the University of Chicago
database.
Miller, M. H., & Rock, K. (1985). Dividend Policy under Asymmetric Information. The Journal
of Finance, 40(4), 1031-1051. Retrieved April 15, 2013, from the EconLit database.
Needles, B. E. (1999). Principles of accounting (7th ed., instructor's annotated ed.). Boston:
Houghton Mifflin Co..
Penman, Stephen H.. "The Predictive Content of Earnings Forecasts and Dividends." The
Accounting Review 38.4 (1996): 1181-1199. JSTOR. Web. 15 Apr. 2013.
Peterson, P. P., & Fabozzi, F. J. (1999). Analysis of financial statements. New Hope, Pa.: Frank J.
Fabozzi Associates.
Sharma, S. (2001). Do Dividend Initiations Signal Firm Prosperity?. n/a, N/A, 1-36. Retrieved
April 21, 2013, from the MIT.edu database
Watts, R. (1973). Journal of Business. The Information Content of Dividends, 46(2), 191-211.
Retrieved April 16, 2013, from http://0-www.jstor.org.hkbulib.hkbu.edu.hk/stable/2351363
Weston, J. F., & Brigham, E. F. (1969). Managerial finance (3d ed.). New York: Holt, Rinehart
and Winston.
VIII. RELEVANT DATA SOURCES
Name URL AAstock 阿斯達克財經網 www.aastocks.com
Yahoo! Finance http://hk.finance.yahoo.com/
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IX. APPENDIX
Appendix 1 Influence of DI on the change in ROA
Code Name ROA2 ROA1 Change in ROA
6889 DYNAM JAPAN 10.16 9.7 0.0474
3666 XIAO NAN GUO 8.99 9.94 ‐0.0956
8240 C CITYRAILTEC 17.37 46.99 ‐0.630346882
1366 JIANGNAN GP 7.11 7.58 ‐0.0620
1613 SYNERTONE 24.03 28.07 ‐0.1439
1300 TRIGIANT 10.87 9.4 0.1564
1266 XIWANG STEEL 4.57 15.86 ‐0.7119
1210 CHRISTINE 0.98 5.46 ‐0.820512821
1830 PERFECT SHAPE 17.9 19.42 ‐0.078269825
1972 SWIREPROPERTIES 7.91 11.51 ‐0.3128
1315 VISION FAME 8.46 13.87 ‐0.3901
1803 ASR HOLDINGS 26.09 45.34 ‐0.4246
6830 HUAZHONG HLDG 0.11 7.33 ‐0.9850
1263 PC PARTNER 2.3 2.76 ‐0.1667
8031 ETS GROUP 13.59 27.81 ‐0.5113
1251 SPT ENERGY 9.93 12.38 ‐0.1979
3778 CHINA WEAVING 0.15 8.33 ‐0.9820
579 JNCEC 2.93 3.01 ‐0.0266
1298 TECHCOMP 2.25 6.57 ‐0.6575
2200 HOSA INT'L 26.11 26.22 ‐0.004195271
1929 CHOW TAI FOOK 13.37 12.18 0.0977
1336 NCI 0.59 0.72 ‐0.1806
6880 OTO HOLDINGS 5 21.61 ‐0.7686
2121 FIRST CHEM 10.2 11.87 ‐0.1407
1262 LABIXIAOXIN 13.65 11.76 0.1607
1023 SITOY GROUP 19.87 30.54 ‐0.3494
6388 COACH‐DRS‐RS 33.43 29.79 0.1222
6823 HKT‐SS 2.43 1.88 0.2926
1239 JIN BAO BAO H 7.4 11.7 ‐0.3675
6813 CAPMALLSASIA‐S 5.5 5.65 ‐0.0265
6030 CITIC SEC 2.51 8.48 ‐0.7040
1235 TRAVEL EXPERT 12.01 20.78 ‐0.422040423
1096 ACTIVE GROUP 6.3 13.35 ‐0.5281
6868 TENFU 13.8 11.84 0.1655
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1028 C.BANNER 13.87 16.76 ‐0.172434368
1236 QIANLONG TECH 2.06 8.81 ‐0.766174801
6808 SUNART RETAIL 5.4 3.87 0.3953
1127 1010 PRINTING 7.94 9.72 ‐0.1831
1663 S HARBOUR PPT 5.65 7.83 ‐0.2784
6838 WINOX 15.47 18.19 ‐0.1495
1259 PRINCE FROG 19.07 16.87 0.1304
2098 ZALL DEV 9.08 13.15 ‐0.3095
1151 ELEC & ELTEK 5.69 7.71 ‐0.2620
1082 MODERN EDU 16.6 20.86 ‐0.2042
1241 SHUANGHUA H 3.17 7.42 ‐0.5728
1115 TIBET 5100 15.54 18.32 ‐0.151746725
1025 WUMART 5.98 6.94 ‐0.1383
847 KAZAKHMYS‐S 7.93 13.19 ‐0.3988
1488 L&M HANDBAGS 26.51 22.96 0.1546
1913 PRADA 18.48 14.67 0.2597
1061 ESSEX BIO‐TECH 11.75 15.24 ‐0.229002625
871 XIANGYU DREDG 7.68 19.37 ‐0.6035
831 CR ASIA 10.39 8.94 0.162192394
1910 SAMSONITE 8.19 5.62 0.4573
935 DRAGON CROWN 9.51 8.24 0.1541
3363 ZHENGYE INT'L 2.85 3.2 ‐0.1094
8193 GC PRO SER 9.41 48.07 ‐0.804243811
2083 CHINAFLOORING 3.98 9.86 ‐0.5963
805 GLENCORE‐S 0.95 4.7 ‐0.7979
1150 MILAN STATION 11.99 32.74 ‐0.6338
2607 SH PHARMA 4.02 4.28 ‐0.0607
2299 BILLION IND 9.58 12.46 ‐0.2311
2789 YUANDA CHINA 3.59 8.44 ‐0.5746
87001 HUI XIAN REIT 7.36 2.41 2.0539
1623 HILONG 8.54 8.44 0.0118
1181 TANG PALACE 10.96 11.14 ‐0.016157989
6488 SBI HLDGS‐DRS 0.19 0.35 ‐0.4571
3360 FE HORIZON 2.5 2.29 0.0917
1378 CHINA HONGQIAO 12.29 19.8 ‐0.3793
3688 TOP SPRING 4.81 5.01 ‐0.0399
1057 ZHEJIANG SHIBAO 6.1 10.74 ‐0.4320
8098 CL GROUP 11.02 13.38 ‐0.176382661
1121 BAOFENGMODERN 10.78 11.35 ‐0.0502
1143 TELEFIELD 2.71 7.39 ‐0.6333
8265 POWERWELL PAC 1.98 8.95 ‐0.7788
1075 CAPINFO 7.67 7.95 ‐0.0352
1323 NEWTREE GROUP 11.81 20.63 ‐0.427532719
16 | P a g e
2011 KEE 0.3 6.21 ‐0.951690821
1089 SUMPO FOOD 0.01 6.92 ‐0.9986
935 Dragon Crown Group Holdings Limited
9.51 8.24 0.1541
1157 Changsha Zoomlion Heavy Industry Science and Technology Deve
8.24 11.27 ‐0.2689
1112 Biostime International Holdings Limited
21.03 21.63 ‐0.027739251
1798 China Datang Corporation Renewable Power Co. Limited ‐ H Share
0.2 1.34 ‐0.8507
3618 Chongqing Rural Commercial Bank Co., Ltd.
67.89 71.38 ‐0.0489
1282 World Wide Touch Technology (Holdings) Limited
4.38 12.99 ‐0.6628
468 Greatview Aseptic Packaging Company Limited
13.09 12.69 0.0315
1768 Sateri Holdings Limited 2.32 6.13 ‐0.6215
1090 Da Ming International Holdings Limited
0.73 2.33 ‐0.6867
1708 Nanjing Sample Technology Co. Ltd. ‐ H Shares
10.45 10.08 0.0367
1110 Kingworld Medicines Group Limited
7.38 8.22 ‐0.1022
1086 Goodbaby International Holdings Limited
5.68 5.58 0.0179
1101 China Rongsheng Heavy Industries Group Holdings Limited
3.36 4.19 ‐0.1981
8207 Credit China Holdings Limited 11.32 13.94 ‐0.1879
1091 CITIC Dameng Holdings Limited
4.59 3.35 0.3701
312 Shirble Department Store Holdings (China) Limited
2.44 8.14 ‐0.7002457
842 Leoch International Technology Limited
1.41 6.67 ‐0.7886
1230 Yashili International Holdings Limited
6.6 11.21 ‐0.4112
1299 AIA Group Limited 1.4 2.5 ‐0.4400
460 Sihuan Pharmaceutical Holdings Limited
9.31 7.56 0.231481481
1700 Springland International Holdings Limited
6.27 6.63 ‐0.0543
1685 Boer Power Holdings Limited 12.29 12.4 ‐0.008870968
8269 Wealth Glory Holdings Limited 34.42 49.72 ‐0.30772325
956 China Suntien Green Energy Corporation Limited
3.19 2.39 0.3347
2266 Kosmopolito Hotels International Limited
3.02 0.72 3.1944
1733 Winsway Coking Coal Holding Limited
6.41 10.18 ‐0.3703
2208 Xinjiang Goldwind Science & Technology Co Ltd
1.87 8.06 ‐0.7680
2468 Trony Solar Holdings Company Limited
15.85 28.05 ‐0.4349
17 | P a g e
1021 Midas Holdings Limited 0.55 4.36 ‐0.8739
1308 SITC International Holdings Company Limited
10.98 14.22 ‐0.2278
1682 Ford Glory Group Holdings Limited
3.09 7.02 ‐0.5598
926 Besunyen Holdings Company Limited
3.17 25.01 ‐0.8733
1698 Boshiwa International Holding Limited
7.87 15.21 ‐0.4826
867 China Medical System Holdings Limited
13.7 22.79 ‐0.3989
853 Micro Port Scientific Corp 11.05 26.18 ‐0.5779
2198 China Sanjiang Fine Chemicals Company Limited
10.49 14.79 ‐0.2907
2238 Guangzhou Automobile Group Co., Ltd. ‐ H Shares
9.58 11.15 ‐0.1408
1428 Bright Smart Securties & Commodities Group Limited
2.31 6.4 ‐0.6391
2233 West China Cement Limitd 7.86 16.68 ‐0.5288
640 Infinity Chemical Holdings Company Limited
6.87 17.19 ‐0.6003
1288 Agricultural Bank of China Limited
82.4 85.98 ‐0.0416
2118 Tian Shan Development (Holding) Limited
4.34 5.52 ‐0.2138
1019 Convoy Financial Services Holdings Limited
19.18 23.38 ‐0.179640719
976 Chiho‐Tiande Group Limited 9.85 22.66 ‐0.5653
1666 Tong Ren Tang Technologies Co. Ltd. ‐ H Shares
9.09 9.13 ‐0.0044
1788 Guotai Junan International Holdings Limited
2.51 3.83 ‐0.3446
951 Chaowei Power Holdings Limited
9.98 14.28 ‐0.3011
1020 Sinoref Holdings Limited 24.51 36.98 ‐0.3372
325 Trauson Holdings Company Limited
24.21 25.33 ‐0.0442
2128 China Liansu Group Holdings Limited
20.11 18.41 0.0923
2208 Xinjiang Goldwind Science & Technology Co Limited
8.06 11.73 ‐0.3129
1026 Universal Technologies Holdings Limited
6.16 7.26 ‐0.1515
1282 World Wide Touch Technology (Holdings) Limited
12.99 17.88 ‐0.2735
2228 COSTIN New Materials Group Limited
17.81 23.66 ‐0.2473
873 International Taifeng Holdings Limited
19.94 21.22 ‐0.0603
8337 Directel Holdings Limited 16.91 31.78 ‐0.467904342
2188 China Titans Energy Technology Group Co., Limited
9.51 17.64 ‐0.4609
2268 Youyuan International Holdings Limited
11.29 12.71 ‐0.1117
2222 NVC Lighting Holding Limited 11.86 11.38 0.0422
18 | P a g e
950 Lee's Pharmaceutical Holdings Limited
18.62 22.23 ‐0.1624
503 Lansen Pharmaceutical Holdings Limited
9.07 11.68 ‐0.2235
973 L'OCCITANE International S.A. 12.66 18.7 ‐0.3230
1863 Sijia Group Company Limited 16.5 36.44 ‐0.5472
877 O‐Net Communications (Group) Limited
12.81 24.56 ‐0.478420195
1999 Man Wah Holdings Limited 17.65 36.3 ‐0.5138
830 Far East Global Group Limited 7.18 13.22 ‐0.45688351
1998 Flyke International Holdings Limited
19.86 28.75 ‐0.3092
881 Zhongsheng Group Holdings Limited
6.37 8.55 ‐0.2550
1280 Huiyin Household Appliances (Holdings) Company Limited
4.94 9.67 ‐0.4891
2010 Ruinian International Limited 13.12 17.09 ‐0.2323
1683 International Mining Machinery
9.28 10.37 ‐0.1051
1938 Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Limited
1.94 17.18 ‐0.8871
1966 China SCE Property Holdings Limited
4.68 8.94 ‐0.4765
953 Meike International Holdings Limited
9.17 16.65 ‐0.4492
Average ROA change 10.235 14.711 ‐0.255120091
Appendix 2 Influence of DI on the change in Debt/equity ratio and current assets
Code Name *D/E *CA
6889 DYNAM JAPAN ‐0.4246 0.0605
3666 XIAO NAN GUO ‐0.5955 0.2037
8240 C CITYRAILTEC #DIV/0! 4.998464
1366 JIANGNAN GP ‐0.1327 0.2527
1613 SYNERTONE ‐1.0000 0.0490
1300 TRIGIANT ‐0.4374 0.0639
1266 XIWANG STEEL ‐0.2526 0.2015
1210 CHRISTINE #DIV/0! 0.276316
1830 PERFECT SHAPE #DIV/0! 0.675456
1972 SWIREPROPERTIES ‐0.0238 0.1722
1315 VISION FAME ‐0.0516 0.0513
1803 ASR HOLDINGS ‐0.5000 0.6901
6830 HUAZHONG HLDG ‐0.1713 0.1864
1263 PC PARTNER 0.0355 (0.1097)
8031 ETS GROUP 0.3471 0.5593
19 | P a g e
1251 SPT ENERGY ‐0.1928 0.7784
3778 CHINA WEAVING ‐0.0568 (0.3680)
579 JNCEC 0.5330 (0.0239)
1298 TECHCOMP 0.5422 0.1186
2200 HOSA INT'L #DIV/0! 0.233397
1929 CHOW TAI FOOK ‐0.1519 0.6456
1336 NCI 1.6187 0.1733
6880 OTO HOLDINGS ‐0.4848 0.8803
2121 FIRST CHEM 0.0322 (0.0738)
1262 LABIXIAOXIN ‐0.5863 (0.1278)
1023 SITOY GROUP ‐1.0000 1.3150
6388 COACH‐DRS‐RS ‐0.0909 0.1150
6823 HKT‐SS 0.0199 0.1685
1239 JIN BAO BAO H ‐0.4198 (0.0104)
6813 CAPMALLSASIA‐S 1.1175 0.0052
6030 CITIC SEC 0.5318 0.1296
1235 TRAVEL EXPERT #DIV/0! 0.474132
1096 ACTIVE GROUP 1.1553 0.2620
6868 TENFU ‐0.6682 (0.2938)
1028 C.BANNER #DIV/0! 0.31596
1236 QIANLONG TECH #DIV/0! ‐0.00625
6808 SUNART RETAIL 0.5372 (0.0044)
1127 1010 PRINTING 0.1125 0.4127
1663 S HARBOUR PPT 0.0082 0.1754
6838 WINOX 0.1227 0.0099
1259 PRINCE FROG ‐1.0000 0.0853
2098 ZALL DEV 0.6808 0.4589
1151 ELEC & ELTEK ‐0.3025 (0.1385)
1082 MODERN EDU ‐1.0000 1.0474
1241 SHUANGHUA H ‐0.8345 (0.2849)
1115 TIBET 5100 #DIV/0! ‐0.00407
1025 WUMART 0.8941 0.2043
847 KAZAKHMYS‐S 0.8382 (0.0243)
1488 L&M HANDBAGS ‐0.5791 (0.1387)
1913 PRADA ‐0.1746 0.2416
1061 ESSEX BIO‐TECH #DIV/0! 0.137751
871 XIANGYU DREDG 13.6798 0.3892
831 CR ASIA #DIV/0! 0.058366
1910 SAMSONITE 1.3984 0.1668
935 DRAGON CROWN 1.4582 (0.3030)
3363 ZHENGYE INT'L 0.3742 0.1755
8193 GC PRO SER #DIV/0! 0.621887
2083 CHINAFLOORING ‐0.3485 (0.1032)
20 | P a g e
805 GLENCORE‐S 0.1080 0.1821
1150 MILAN STATION 147.7143 (0.1706)
2607 SH PHARMA ‐0.1918 0.0780
2299 BILLION IND 0.4925 (0.1983)
2789 YUANDA CHINA 0.2235 0.2278
87001 HUI XIAN REIT 8.0256 1.1523
1623 HILONG 0.0830 0.1150
1181 TANG PALACE #DIV/0! ‐0.04427
6488 SBI HLDGS‐DRS 0.0975 0.3534
3360 FE HORIZON ‐0.1027 0.2413
1378 CHINA HONGQIAO 0.8711 0.3677
3688 TOP SPRING ‐0.0826 0.2096
1057 ZHEJIANG SHIBAO 0.2581 0.2202
8098 CL GROUP #DIV/0! ‐0.24193
1121 BAOFENGMODERN 0.1608 (0.0085)
1143 TELEFIELD 0.5185 0.1341
8265 POWERWELL PAC ‐0.2772 0.0585
1075 CAPINFO ‐0.2267 0.0175
1323 NEWTREE GROUP #DIV/0! ‐0.1466
2011 KEE #DIV/0! 0.006046
1089 SUMPO FOOD 2.2216 0.0508
935 Dragon Crown Group Holdings Limited ‐0.9272
(0.3030)
1157 Changsha Zoomlion Heavy Industry Science and Technology Deve 0.3428
0.3219
1112 Biostime International Holdings Limited #DIV/0!
0.065396
1798 China Datang Corporation Renewable Power Co. Limited ‐ H Share 0.1183
(0.9992)
3618 Chongqing Rural Commercial Bank Co., Ltd. 0.0542
0.2646
1282 World Wide Touch Technology (Holdings)
Limited 0.2917
(0.1001)
468 Greatview Aseptic Packaging Company Limited ‐0.3547
0.0968
1768 Sateri Holdings Limited ‐0.1637 (0.2685)
1090 Da Ming International Holdings Limited ‐0.1819
(0.2012)
1708 Nanjing Sample Technology Co. Ltd. ‐ H Shares ‐0.3553
0.0363
1110 Kingworld Medicines Group Limited 0.2082
(0.0586)
1086 Goodbaby International Holdings Limited ‐0.3765
(0.0040)
1101 China Rongsheng Heavy Industries Group Holdings
Limited 0.0308
(0.1054)
21 | P a g e
8207 Credit China Holdings Limited 0.7998 0.2983
1091 CITIC Dameng Holdings Limited 0.2810
(0.0017)
312 Shirble Department Store Holdings (China) Limited #DIV/0!
0.166952
842 Leoch International Technology Limited 0.2935
0.1986
1230 Yashili International Holdings Limited 8.8902
0.1101
1299 AIA Group Limited ‐0.1410 (0.1169)
460 Sihuan Pharmaceutical Holdings Limited #DIV/0!
‐0.17694
1700 Springland International Holdings Limited 0.4438
0.0076
1685 Boer Power Holdings Limited #DIV/0! 0.060827
8269 Wealth Glory Holdings Limited #DIV/0!
1.208514
956 China Suntien Green Energy Corporation Limited 0.2429
0.1370
2266 Kosmopolito Hotels International Limited ‐0.1373
0.6977
1733 Winsway Coking Coal Holding Limited 2.7738
0.6282
2208 Xinjiang Goldwind Science & Technology Co Ltd 1.7976
0.1108
2468 Trony Solar Holdings Company Limited 0.0423
0.9898
1021 Midas Holdings Limited 0.5484 3.9947
1308 SITC International Holdings Company Limited 2.3042
2.3215
1682 Ford Glory Group Holdings Limited 0.0682
0.1353
926 Besunyen Holdings Company Limited 2.0658
3.5246
1698 Boshiwa International Holding Limited 0.2229
0.8680
867 China Medical System Holdings Limited 3.8310
1.6530
853 Micro Port Scientific Corp 0.0045 2.8548
2198 China Sanjiang Fine Chemicals Company Limited 0.4769
1.0534
2238 Guangzhou Automobile Group Co., Ltd. ‐ H Shares 0.0319
0.1284
1428 Bright Smart Securties & Commodities Group Limited 19.7164
1.3931
2233 West China Cement Limitd 1.3788 0.3575
640 Infinity Chemical Holdings Company Limited 1.9269
0.2389
1288 Agricultural Bank of China Limited ‐0.0566
0.2488
2118 Tian Shan Development (Holding) Limited 0.0980
0.2936
1019 Convoy Financial Services Holdings Limited #DIV/0!
1.393101
976 Chiho‐Tiande Group Limited 0.3952 0.9886
22 | P a g e
1666 Tong Ren Tang Technologies Co. Ltd. ‐ H Shares 6.5729
0.1607
1788 Guotai Junan International Holdings Limited ‐1.0000
0.2542
951 Chaowei Power Holdings Limited 0.0416
1.0960
1020 Sinoref Holdings Limited ‐1.0000 2.4339
325 Trauson Holdings Company Limited ‐1.0000
0.5786
2128 China Liansu Group Holdings Limited 0.7861
0.8482
2208 Xinjiang Goldwind Science & Technology Co Limited 1.7976
1.0234
1026 Universal Technologies Holdings Limited 2.3749
2.0400
1282 World Wide Touch Technology (Holdings)
Limited 0.5616
1.3464
2228 COSTIN New Materials Group Limited 1.1412
1.4582
873 International Taifeng Holdings Limited 0.9467
1.2989
8337 Directel Holdings Limited #DIV/0! 3.388522
2188 China Titans Energy Technology Group Co.,
Limited 1.6436
1.0206
2268 Youyuan International Holdings Limited ‐0.6074
1.4481
2222 NVC Lighting Holding Limited 1.4018 1.3486
950 Lee's Pharmaceutical Holdings Limited ‐0.3665
0.7335
503 Lansen Pharmaceutical Holdings Limited 1.4651
0.7149
973 L'OCCITANE International S.A. ‐0.3313
0.0817
1863 Sijia Group Company Limited ‐0.3177 0.8154
877 O‐Net Communications (Group) Limited #DIV/0!
4.164212
1999 Man Wah Holdings Limited ‐0.3160 0.4945
830 Far East Global Group Limited #DIV/0!
0.028202
1998 Flyke International Holdings Limited ‐0.3330
1.1014
881 Zhongsheng Group Holdings Limited 0.9190
1.8777
1280 Huiyin Household Appliances (Holdings) Company Limited 10.8901
1.1028
2010 Ruinian International Limited ‐0.1298 1.8470
1683 International Mining Machinery ‐0.4147
0.0348
1938 Chu Kong Petroleum and Natural Gas Steel Pipe
Holdings Limited 1.0303
0.6126
1966 China SCE Property Holdings Limited 0.5878
0.4526
953 Meike International Holdings 1.6667 1.7284
23 | P a g e
24 | P a g e
Limited
Average ROA change 0.1888 0.5155
(#DIV/0!: occurs when total debts or assets is 0 or N/A)
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