In inflationary environments, companies can avoid paying cash dividends to their shareholders. Instead they give them free shares, referred to as bonus distributions. This form of dividend allows companies to use the inflation revaluation equity reserves, instead of the retained earnings.

This issue has not been analysed in previous studies, partly because the inflation in many western countries is relatively low and stable. However, in many emerging countries, including China where according to recent news the inflation is increasing, inflation remains a threat and companies need to find ways of circumventing its effects, particularly in the case of keeping the return to their shareholders in the form of dividends steady.

In this study, the market valuation of this unusual form of stock dividends was assessed, this was carried out by transferring the accumulated equity reserves, mainly the inflation revaluation equity reserves, to paid-in capital leaving the total equity unchanged.

The full version of this article is now available to read below, alongside an executive summary written by Professor Meziane Lasfer.