The Propensity To Pay Cash Dividends In China Listed Companies: Agency Cost Theory Or Catering Theory?

Cash dividends policy which is the main and common distribution in western listed companies affects the distribution of earnings between the shareholders and retained earnings. The phenomena that the listed companies pay a little cash dividends, even don't pay cash dividends is very common in China. The traditional dividends policy uses the agency cost theory to explain this problem. The agency cost theory holds that the aim of paying cash dividends for listed companies is to reduce the agency cost which comes from the separation of ownership and management. With Behavioral Finance introducing to dividends policy, a new explanation for this problem emerges from the catering theory. The catering theory holds that the reason why listed companies pay cash dividend is to raise the premium. Thus this thesis makes empirical tests to compare the applicability of each theory for China stock market, and analyses the propensity of cash dividends distribution in China listed companies for studying which theory it support.Based on the dividends theories and interrelated articles, this thesis studies on the following aspects:â‘ statistical description and analysis on the annual characteristics, medium-term characteristics and industrial characteristics of the propensity of cash dividends distribution in China listed companies;â‘¡analysis on how agency cost theory explain the propensity of cash dividends distribution in China listed companies, discussion on how corporate governance affect the propensity of cash dividends distribution from different aspects, and study on the impact by building aggregative indicators of corporate governance;â‘¢analysis on how catering theory explain the propensity of cash dividends distribution in China listed companies, discussion about the difference of various samples which categorized by controlling shareholders'difference, and study on the applicability of catering theory in China stock market;â‘£comparison on empirical results and investigation on which theory does the propensity of cash dividends distribution in China listed companies support.We get four key conclusions as followed:â‘ there is a typical annual characteristic in the propensity of cash dividends distribution in China listed companies, but the industrial characteristic is not obvious. Besides the proportion of medium-term distribution is low and there is no trend to be high. And the policy plays an essential role in the propensity of cash dividends distribution.â‘¡from the perspective of agency cost theory, the reason of low propensity to pay cash dividends is that the listed companies do not want to. The empirical results confirm that there is a positive correlation between corporate governance and propensity of cash dividends distribution. The companies with high ownship concentration, state-holding and high executive compensation are apt to pay cash dividends. However the companies with high proportion of liquid share are not apt to pay cash dividends. The empirical results of the characteristics of board of directors and the status of information disclosure are not significant for the propensity of cash dividends distribution.â‘¢from the perspective of catering theory, the reason of low propensity to pay cash dividends is the low level of premium in China stock market. In addition, the catering theory is more applicable in explaining the propensity of cash dividends in state-holding companies.â‘£since this thesis using the same sample to test two different theories, the empirical results of goodness of fit, significance of variables and annual test support that the catering theory is more applicable than agency cost theory in China stock market.