The Research On Dividend Policy For The Chinese Listed Companies

This paper aims to study the dividend policy of China's listed companies, and is especially concerned with cash dividend distribution. Dividend yield is usually considered as a kind of return on investment, and dividend decision is one of the major financial decisions that the listed companies must make. Ever since Lintner(1956) and Miller&Moligdiani (1961)'s pioneering research on dividend policy, economic literatures devoted to issues on dividend policy have been dramatically increasing. Among various perspectives to study the dividend policy, we choose the agency theory of dividend policy. Based on the samples in Anglo-American countries, traditional agency theory of dividend policy shows us the impact of the principal-agent relationship between the managers and shareholders on the firm's dividend policy. Distributing resources in the form of cash dividends will force managers to seek outside capital, thus reduce agency costs. Different from the firms in Anglo-American countries, firms in many other countries suffer the major principal-agent problem from the conflicts between the controlling shareholder and many minority shareholders. On one hand, the existence of controlling shareholder may help to solve the conflict of interest between the managers and shareholders;on the other hand, the controlling shareholder has the incentive to carry out "tunneling", thus hurting the minority shareholders. China's listed companies are with following distinct features, the ownership is highly concentrated, and the shares are non-tradable, meanwhile another important feature is that the actual controlling shareholder of the many listed companies is the government. Therefore, in this paper, we try to illustrate how different ownership structures of China's listed companies will influence the dividend payout ratio in the long-term.This paper will be organized as follows. Section 1 is the introduction. In section 2, firstly we give a general sample statistics description in order to help readers establish a basic understanding of the current dividend situation among China's listed companies. Then, using the partial adjustment model proposed by Lintner (1956), we observe the dynamic correlation between earnings and dividends. The empirical results obtained from the regression show that, compared with the results of Lintner(1956) and other subsequent relevant research using samples of other countries in the world, the estimate of the speed of adjustment for the sample of China's listed companies is larger, therefore contrary to the Anglo-American countries'relatively smoothing dividend policy described by Lintner(1956), the dividend policy of listed companies in China does not move smoothly, but more volatilely in the long-term, current earnings are more important in explaining the dividend decisions.Section 3 is the literature review. We summarize the existing literatures on dividend policy, consequently providing a theoretical and empirical foundation for further study. In section 4, adopting the econometric model used by LLSV (2000b) and Faccio et al (2001), we estimate the relationship between the dividend payout ratio and ownership structure based on a sample of China's listed companies. Our empirical findings are as follows:for China's listed companies, the more concentrated ownership structure is, the higher the dividend payout ratio is; if the actual controlling shareholder in the first level owns more shares, the dividend payout ratio will be higher; the existence of other large shareholders will help to increase the dividend payout ratio.Contrary to the previous studies in the Western European countries, using a sample of China's listed companies, our result shows a positive correlation between the dividend payout ratio and ownership structure. One possible explanation is that most actual controlling shareholder of Chinese listed companies is the government, at the same time the Board of Directors who make the dividend decisions are themselves agents, but in Western Europe the largest shareholders in the sample are family, individual or group companies. And the characterization that the more shares the actual controlling shareholder holds, the higher dividend payout ratio in fact reflects a special cash dividend preference when the actual controlling shareholder is government, and at least this preference is different with the private controlling shareholders'preference.