Research On Corporate Dividend Policy Based On Resource Allocation Perspective

Dividend policy is not only an important part of corporate management, but also a kind of resource re-allocation method. The companies'operators dispose the distributable profit to three directions, which includes reservation in company, going into investors'pockets and going into tax bureau. In this resource allocation problem, the divide up of dividend among the three principle parts and its influence on resource allocation efficiency are necessary to study.From lintner(1956)'s report of dividend smoothing, many scholars have been studying corporate dividend behavior for more than 50 years, producing abundant literature from different analysis angles, such as signaling, agent cost, free cash flow, dividend tax and investors behavior. But there are no paper specially focused on resource allocation angle. Considering the thriving dividend behavior in Chinese stock market, this study is valuable for theory and practice.The purpose of this paper is to analyze the relative resource allocation problems in dividend policy based on literature review. Besides the introduction of Chapter 1, the literature review of Chapter 2 and conclusion of Chapter 7, the main body of the paper includes three parts.The first part includes Chapter 3 and Chapter 4. In Chapter 3, the dividend's influence on efficiency of resource allocation was studied, using the market-book rate as a positive measure of a corporation's quality, the dispersion of market-book rates as a negative measure of a stock market's efficiency of resource allocation. The results show that, high-quality corporations paying less dividend and low-quality corporations paying more dividend would improve the efficiency of resource allocation. In addition, the market's information efficiency and company's debt level would affect the resource allocation mechanism of dividend.In Chapter 4, product market competition level is used as an indirect indicator of resource allocation efficiency. The result shows, along with the rise of product market competition level, corporate raise their dividend tendency first and begin to reduce it after a period of time. This inverted-U shape relationship reveals that corporation's dividend policy would improve the efficiency of resource allocation.This paper proceeds to a case study in the second part, Chapter 5. Foshan Lighting Company carried out a cash-cow dividend policy in more than 15 years, but stock market didn't regard it as a positive signal. Why? The analysis tells that, though Foshan Lighting Company is good at cost controlling, it is bad on investing and insiders controlling. For this company, it is more effective to pay more dividend than paying less.In the third part, chapter 6, this paper investigates dividend tax in resource allocation. This paper established an arbitrage model around ex-dividend day in Chinese stock market, base on present literature. The empirical test using Chinese data has supported the model. In this model, government would lose some of their dividend tax and get some more stamp tax, lower-tax investors would get some cash dividend and pay for buying stocks before ex-date, and higher-tax investors would sell their stocks before ex-date if the stocks'dividend premium is high enough.The key innovations are following.1. This research classified two resource allocation nods in dividend process. Nod A is controlling the resource allocation between inside and outside of the company, and nod B is controlling the resource allocation between tax bureau and investors.2. A better measure of resource allocation efficiency was modified and tested using Chinese listed Companies data. Based on the dispersion of Tobin's Q used in some present literature, this paper proposed a new indicator called the dispersion of market-book rates to measure the efficiency of equity capital.3. This paper modified the model of the relationship between dividend policy and product market competition. Previous literature, such as Grullon and Michaely(2007), proposed that the relationship was simple linear. This paper modified this opinion and found an inverted-U shape relationship between the two variables.4. A modified arbitrage model, based on Boyd and Jagannathan(1994), was proposed aiming at the ex-date trading behavior in Chinese stock market, and the model was supported in the empirical test using Chinese stock market data. In addition, the resource allocation effect of the arbitrage was carried out.