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Dividend or growth funds: what drives individual investors' choices?

Journal: International Review of Financial Analysis

Date: 2021

Author: Dun Han, Liyan Han, Yanran Wu, Pei Liu

Abstract:
We study dividend fund buying behavior using over 80,000 individual Chinese mutual fund investors from a private Chinese mutual fund account dataset. Based on a variety of specifications and logistic regressions, we empirically investigate investors' characteristics in choosing dividend-paying and/or growth mutual funds under different market scenarios. To the best of our knowledge, this research represents an initial attempt to study individual dividend investors in mutual fund markets. We find that older Chinese investors prefer dividend-paying funds less than growth funds, but this depends on different market conditions, and the age effect shows a nonlinear mode when considering age grouping. Moreover, investors' prior experience plays a crucial role in choosing the fund type; however, the conclusions vary with market scenarios. In addition, female investors prefer more dividend-paying funds than do male investors, but investing experience counteracts this difference. We also find that geographic location is a contributor when investors decide the fund type.

Link: Google Scholar

Background and Context

Study Overview

This research analyzes over 80,000 individual Chinese mutual fund investors' choices between dividend-paying and growth funds from 2005-2011, covering both bull and bear markets.

Market Context

The Chinese mutual fund industry grew rapidly after its 2001 launch, with 62 fund management companies managing 576 funds worth 2 trillion yuan by 2010.

Methodology

The study uses logistic regression analysis to examine how investor characteristics like age, gender, experience and geographic location influence fund choice under different market scenarios.

Gender Differences in Fund Choice Preferences

  • Female investors show stronger preference for dividend-paying funds (59%) compared to males (41%)
  • Male investors slightly favor growth funds (47%) over dividend funds
  • Gender differences persist but are moderated by investing experience

Age Group Distribution Across Fund Types

  • Investors aged 25-35 show highest participation in both fund types
  • Younger investors (under 35) are more active in fund investments overall
  • Senior investors (>55) show lower participation rates in both fund types

Regional Distribution of Fund Investments

  • Region 2 (coastal provinces) shows highest participation in both fund types
  • Major cities (Region 1) show surprisingly lower participation rates
  • Regional differences reflect economic development and real estate market impacts

Net Asset Values Over Market Periods

  • Growth fund shows consistently higher NAV across all periods
  • Both funds show upward trend despite market volatility
  • Correlation between funds varies across market conditions

Experience Impact on Fund Choice

  • More experienced investors show different investment patterns
  • Experience moderates gender-based investment preferences
  • Non-investing group shows highest average experience

Contribution and Implications

  • First comprehensive study of dividend-seeking behavior in Chinese mutual fund markets
  • Reveals important differences between Chinese and Western investor preferences
  • Demonstrates how market conditions influence investment choices differently across demographic groups
  • Provides insights for fund managers and policymakers in emerging markets

Data Sources

  • Gender distribution visualization based on Panel E of Table 1
  • Age group distribution based on Panel E of Table 1
  • Regional distribution based on Panel E of Table 1
  • NAV trends based on Panels A-D of Table 1
  • Experience impact based on experience statistics from Panel E of Table 1