Research On Irrational Dividend Policy Of China’s Listed Firms Based On Behavioral Dividend Theory

For listed firms, dividend policy is not only one of core financial policies, and has always been received attentions from stakeholders but also plays an important role in firm’s development, shareholders’interests, and capital markets’stability. Therefore, it is of importance for listed firms to carry out reasonable dividend policies. Dividend policies in Chinese listed firms have great differences from those in western counterparts and display more irrationality. Classical theories of corporate finance fail to give reasonable explanations for them. It, hence, is reasonable and necessary to introduce behavioral dividend theories and methods.The structure of this paper is as follows. First, this paper illustrates the theories of behavioral finance, the behavior dividend theories, and their recent developments. Second, based on some principles of economics, finance, and psychology, some theoretic conclusions and point views are formed using induction method. Third, irrational behaviors are investigated further after reviewing some practices of rational dividend policies in western listed firms. Based on the above, this paper point out that it is suitable to use behavioral dividend theory to analyze the irrationality in Chinese listed firms. Fourth, based on following two perspectives, investors’irrationality and managerial’s irrationality, irrational dividend behaviors and policies in China are tested empirically. Finally, some advice corresponding to the empirical conclusions are given so as to correct the irrational dividend behaviors in Chinese listed firms.This article aims at following five innovations. First, dividend policy is systematically analyzed using behavioral methods different from traditionally rational ones. These methods are more suitable for the dividend analysis of the Chinese listed firms, and are more reasonable to explain some empirical results. Second, based on some principles of economics, finance, and psychology, some theoretic conclusions and point views are formed using induction method. Hence, behavioral dividend theory is understood further, and the practices of current dividend policies get reasonable explanations. Third, in order to analyze the irrational psychology and behaviors in current markets environment, we base the questionnaire special for investors’behaviors on investors’beliefs, preference, some results from psychology, and some practices in Chinese securities markets. According to the statistical results from the questionnaire, we explain the irrational dividend polices. Fourth, we first employ the catering theory of dividends (the latest dividend theory) and the revised dividend premium which is defined the former. The revised dividend premium, herein, is measured by the mean M/B difference between the firms issuing stock dividends and ones issuing cash dividends. Logistic models and multi-regression models are used to examine whether there is the behavior that manages cater to the shareholders’ preference for stock dividends. Finally, although some literature on managerial overconfidence is explored, they focus usually on the decision on financing the projects and seldom involve the dividend policy. Moreover, it has been a difficult problem for researchers to measure managerial overconfidence effectively. This paper gives an effective measurement of managerial overconfidence. After that, two models are developed to study further the relation between the managerial overconfidence and dividend policy, which fills in the gap in the existing literature to some extent.