China's Listed Companies Cash Dividend Payment Influencing Factors

Agency cost theory, one of the leading theories to explain the nature of dividend policy, systematically analyzes the determinants of cash dividend policy, which is supported by lots of literature in western countries.This paper gives an insight of the agency cost theory, and focuses on the following aspects: determinants of China's listed companies' dividend payout policy before and after the non-tradable shares reform, the effect of the reform, the interaction mechanism between payout policy and institutional holdings. Expanded agency cost model has been used in both theoretical and empirical study. Political suggestions will be given in the end of the paper.The research and empirical study in this paper, based on the agency cost theory, uses data from year 2004 to 2005 of 181 listed companies which had finished their reform by the end of 2005 as a sample before the non-tradable shares reform, and 2006 to 2007 as a sample after the non-tradable shares reform, to show the effect of the reform. Institutional holding factor is also invited to discuss its role in dividend policy. The result shows that the effect of non-tradable shares reform is emerging and institutional holdings now playing a more and more important role in the dividend policy. From the analysis, the larger portion the institutional investors hold the stock, the more return they will get, and the less cost they will be charged to supervise the companies. After the non-tradable shares reform, with institutional holdings expanded, institutional investors are more willing to play a positive part in company supervision which leads to less agency cost.Agency cost theory is used to explain cash dividend policy as one factor by most literature in China without systematically discussion, especially in the research and empirical study of samples after the non-tradable shares reform. This paper tries to make systematical analysis of agency cost theory to explain the dividend policy of China's listed companies both before and after the non-tradable shares reform.After the non-tradable shares reform, the institutional investor has become one of the most important outside investors of the listed companies. In this paper, institutional holding factor is invited in the expanded agency cost model, not only to discuss the determinants of the dividend policy, but also to find out institutional investors' role in solving the agency cost problem.Also, relatively long term data, from year 2004 to 2007, in the empirical study helps to arrive at more reasonable conclusions in discussing the determinants of listed companies' payout policy and institutional investors' role.