Research On The Impact Of Bilayer-internal Capital Market On The Listed Company's Cash Dividends

The impact of internal capital market in groups on the financial policy of member companies is the research hotspots recent studies.Cash dividends payout is the important financial policy of companies and draws high attention of researches,and has gradually become the focus of institutional supervision in recent years.The existing researches only discussed the single impact of capital allocation demand dominated by ultimate controller on cash dividends of listed company,and there are mainly three aspects of theoretical insufficiency.Firstly,existing researches only discussed the one-way theoretical explanation about ultimate controller's tunneling.However,previous studies on internal capital market have recognized that the ultimate controller may not only expropriate the listed company,but also would provide support.The flowing benefits of internal capital allocation dominated by ultimate controller has two directions which contain both tunneling and propping.Thus the question is that,does the impact of internal capital allocation dominated by ultimate controller on cash dividends of listed company have a theoretical explanation about propping?Secondly,existing researches are mainly based on the agency theory.In this condition,the internal capital market is a tool used by ultimate controller to transfer resources or provide temporary support,and its function is distorted and opportunistic.However,previous studies on internal capital market have recognized that the listed company would provide funds to support other member firms under the same control through internal capital allocation.Thus the question is that,does the cash dividends as the important coporate financial policy to consider retaining profit and funds be affected by internal capital allocation demands of other member firms under the same control?Thirdly,existing researches put the whole group composed of listed company and its subsidiaries as the research object.The implicit assumption is that the subsidiaries are absolutely passive follower when listed company makes cash dividends decisions.And thus ingoring the role of subdidiaries in the financial decision-making of listed company.However,previous studies on management have recognized that subsidiaries have been transformed from a traditional passive follower to a active one with autonomy.The development of subsidiaries with autonomy make an important contribution to the persistent competitive capability of the enterprise group.Subsidiaries usually have a certain degree of decision-making autonomy and development needs of funds,the cash dividends payout policy would distinctly be affected by internal capital allcocation demands of subsidiaries.The internal capital market in groups with the multi-level pyramid equity structure can be divided into two layers,the upper layer internal capital market is formed by the ultimate controller and the listed companies,the lower layer internal capital market is formed by the listed companies and its subsidiaries.Both the capital allocation demands and capital allocation efficiency of different layers of internal capital market are different.In the upper layer internal capital market,the internal capital allocation demands is dominated by ultimate controller and is also determined by member firms benefits.The ultimate controller optimized the industrial distribution of group through equity investment and capital allocation,and the member firms in group can achieve capital cooperation and internal financing through internal capital market.However,the ultimate controller may expropriate the listed companies(or called tunneling)through the capital allocation activities,due to the private benefits of control generated from the the separation of ownership and control.Moreover,the ultimate controller would provide temporary support(or called propping)when listed company is in needed.In the lower layer internal capital market,the internal capital allocation demands is determined by the decision-making autonomy and benefits of subsidiaries.The listed company achieves industry and geographic expansion through diversifiedly investing and holding subsidiaries,and the subsidiaries achieve the cash flow coinsurance and financial cooperation through internal capital market.However,the managements of subsidiaries may have rent-seeking and use cash inefficiently due to the agency relationship and information asymmetry,thus decreasing the efficiency of internal capital allocation and financial liquidity.Therefore,the research on the impact of internal capital market in group on the listed company's cash dividends needs to analysis systematicly and deeply on dual-mechanism of bilayer-internal capital market wich is composed of upper holding group and lower parent-subsidiary group.The basic question of this study is how the bilayer-internal capital market in group affect the cash dividends of the listed company.The specific research questions include the following four aspects.Firstly,how do the related transactions dominated by controlling shareholder in upper layer internal capital market affect the cash dividend distribution of the listed company?Secondly,how does other member companies' fund demand in upper layer internal capital market affect the cash dividend distribution of the listed company?Thirdly,how do subsidiaries' payout policy and cash distribution between listed company and its subsidiaries in lower layer internal capital market affect the cash dividend distribution of the listed company?Lastly,how do indurstrial and geographic diversification of subsidiaries in lower layer internal capital market affect the cash dividend distribution of the listed company?In the upper layer internal capital market,the related transactions between listed company and controlling shareholder as well as between listed company and member companies under common control are the feature of vertical capital allocation.While the other member companies' fund demand is the feature of horizontal capital allocation.In the lower layer internal capital market,this study investigates the subsidiaries' payout policy,cash distribution between listed company and its subsidiaries,and subsidiaries' diversification.subsidiaries' payout policy and cash distribution between listed company and its subsidiaries are the feature of vertical capital allocation.While the indurstrial and geographic diversification of subsidiaries are the feature of horizontal capital allocation.To address the above questions,this study applys the relevant theories about internal capital market and cash dividends payout,establishes a theoretical analysis framework for that how the bilayer-internal capital market in group affect the cash dividends of the listed company,and obtains the four main conclusions through specific theoretical analysis and empirical test.Firstly,the impact of related transactions dominated by controlling shareholder in upper layer internal capital market on the cash dividends of the listed company is two-way including tunneling and propping,which depends on whether the cash dividends payout ability of listed company can meet the SEO conditions.On the one hand,when the cash dividends payout ability of listed company can meet the SEO conditions,related transactions as means of tunnelling by controlling shareholder have a significant negative impact on the cash dividends of listed company.On the other hand,when the cash dividends payout ability of listed company can't meet the SEO conditions,related transactions as a way of propping by controlling shareholder have a significant positive impact on the cash dividends of listed company.Secondly,both the investment demand growth and performance decline of member companies in upper layer internal capital market have a significant negative impact on the cash dividends of listed company,and thus retain funds to provide financial support to those member companies through internal capital allocation.Thirdly,subsidiaries' payout policy and cash distribution between listed company and its subsidiaries in lower layer internal capital market have an important impact on the cash dividends payout ability of the listed company.The cash dividends payout ability of the listed company should be determined by the actual control right rather than attributable right of cash and profit.Lastly,the impact of subsidiaries' diversification in lower layer internal capital market on the cash dividends of the listed company is two-way including both positive and negative,which mainly depends on the result of weighing the cost and benefit generated by subsidiaries' diversification.For the subsidiaries'industrial diversification,the cost(i.e.,exacerbating the agency problem that subsidiary management's rent-seeking and decrease the efficiency of internal capital allocation)exceeds the benefit(i.e.,realizing the cash flow coinsurance between different business units,and thus improving group's financial liquidity),therefore the subsidiaries'industrial diversification has a negative impact on the cash dividends of the listed company.For the subsidiaries' geographic diversification,the benefit(i,e.,contributing to expand the market and improve performance,realizing the cash flow coinsurance between different geographic units,and thus improve group's financial liquidity)exceeds the cost(i.e.,the difficulty of running across geographies,exacerbating the agency problem that subsidiary management's rent-seeking and decrease the efficiency of internal capital allocation),therefore the subsidiaries' geographic diversification has a positive impact on the cash dividends of the listed company.There are four aspects of research innovations as follows.Firstly,the previous studies on impact of internal capital allocation dominated by ultimate controller's private benifits on cash dividends of listed company only discussed the one-way theoretical explanation about ultimate controller's tunneling.Different from the existing studies,this study further discusses the impact mechanism from the view of ultimate controller's propping,and validates the theoretical explanation about ultimate controller's tunneling at the same time,thus reveals the two-way impact of related transactions dominated by ultimate controller in upper layer internal capital market on the cash dividends of the listed company which includes both tunneling and propping.Secondly,the previous studies on impact of upper layer internal capital market on cash dividends of listed company only discussed the impact mechanism of ultimate controller's private benefits based on agency theory.Different from the existing studies,this study reveals that the listed company will reduce its cash dividends to retain funds and support other member companies through the internal capital market,thus brings the further understanding of the operation mechanism of the upper layer internal capital market,which is composed of ultimate controller,listed company and member companies under the common control.Thirdly,the previous studies on impact factors of cash dividends only investigate the single way impact of internal capital allocation dominated by ultimate controller in upper layer internal capital market.Different from the existing studies,this study expands the impact factors of cash dividends to the lower layer internal capital allocation determined by the autonomy and cash demands of subsidiaries,which contains vertical capital allocation between listed company and its subsidiaries(i.e.,subsidiaries' payout policy and cash distribution)and horizontal capital allocation among subsidiaries(i.e.,subsidiaries' industrial and geographic diversification).This study provides new theoretical explanation and empirical evidence based on subsidiary level for the the researches on the impact factors of cash dividends of listed company,and thus reveals the dual-determined of cash dividends of listed company in bilayer-internal capital market.Lastly,the previous studies on impact factors of cash dividends payout ability based on corporate financial view put the whole group composed of listed company and its subsidiaries as the research object.The implicit assumption is that the financial resources in group was one-way controlled by listed company,the profit and cash status of whole group can already determine the ability of cash dividends of listed company.Different from the existing studies,this study puts the autonomy and cash demands of subsidiaries as the starting point of theoretical analysis,discusses the impact mechanism of distribution of cash and profit between listed company and its subsidiaries,and thus sheds some new light on the ability of cash dividends payout of listed company,realizes the theoretical breakthrough from cashflow right determined to actual control right determined.There two aspects of research contribution as follows.On the one hand,this research enriches the studies on the impact factors of cash dividends of listed company and expands the application of internal capital market theory from three views,which contains ultimate controller's propping,internal capital allocation demands from other member companies,and the lower layer internal capital allocation.On the other hand,this research brings the further theoretical understanding of the operation mechanism of bilayer-internal capital market,such as the driving factors of capital allocation demands in the upper layer internal capital market,the role of listed company's financial policy in the upper layer internal capital market,the impact of autonomy and cash demands of subsidiaries on the capital allocation in the the lower layer internal capital market,and so on.