A Study On The Mechanism Of Equity Refinancing And Cash Dividend In Listed Companies

Equity refinancing and cash dividend are two important financial decisions for listed companies during their regular course of business. The former one is the main approach for listed companies to get the money from the market, while the latter one is an important way to give the money back to the investors using the companies’ undistributed profits. Rationally and balanced use of these two decisions helps to ensure the sustainable development of listed companies as well as protect the shareholders’ equity. In order to regulate the equity refinancing and cash dividend activities, China Securities Regulatory Commission has issued a series of policy. However, the phenomenon of “Emphasizing on refinancing rather than cash dividend” is always criticized by stock market investors. In this paper, the market questioned phenomenon is as a start point, the current situation of disconnection of refinancing and cash dividend is analyzed, a cash dividend-based refinancing system is re-examined, and therefore, a new system which is in line with the spirit of regulators, welcomed by investors and benefit to the China’s A-stock market can be designed.The first part of this article is the explanation and theoretical learning of the meaning of equity refinancing and cash dividend. Secondly, the conflict between the two in China’s small and medium-sized listed companies is analyzed, furthermore, the deficiency of current policy is found out. To resolve this contradiction and provide theory bases for government authorities to regulate the listed companies’ refinancing and cash dividend actions, a new system, which based on an overall consideration of the qualification of subject and amount of refinancing is designed and built. The new system can help China’s capital market to develop healthy and orderly. To validate the system created in this paper, 32 listed companies, which are divided into two groups, are randomly selected and studied. The study result shows that 5 companies fit the requirements of the new system. The ratio of cash dividend to equity refinancing of these 5 companies obviously exceed average level. The new designed system could effectively prevent the phenomenon of “no dividend but only refinancing”, alleviate the phenomenon of “emphasizing on refinancing rather than cash dividend”, and improve the ratio of cash dividend to equity refinancing of listed companies.