The Study On Company’s Dividend Distribution

Generally, the dividend policy should be self-governed by the company, ratherthan intervened by external forces. However, the company’s dividend policy is relatedto the interests of the creditors, shareholders, etc, it becomes a problem to be solvedthat how to regular the company’s dividend distribution.Shareholders’ right to dividend distribution is a right based on shareholder’squalification and status to request company to distribute dividend. Shareholders’ rightto dividend distribution can be divided into abstract dividend distribution right andconcrete dividend distribution right. The premise of company’s dividend distributionis its attributable profits, on this basis, the shareholders’ committee or the board ofdirectors passes dividend distribution resolution, and then the abstract shareholders’right to dividend distribution changes into the concrete one. In this condition, if thecompany refuses to pay dividends, the shareholders can filed a lawsuit to court, andthis kind of request will be supported by court. However, if the company does notpass the dividend distribution resolution, it would be difficult for shareholders to getjudicial remedy. The lack of related laws results in low dividend yield. Under thecondition that large shareholders control the company, the benefit expropriationproblem is easy to emerge. Majority shareholders and minority shareholders havedifferent preferences in dividend policy, majority shareholders tend to retain profits incompany, so they can transfer interests to themselves. Taking the difference ofholding cost between majority shareholders and minority shareholders intoconsideration, even if the company decides to pay dividends, there would be hugedifference in investment return. Majority shareholders could gain more than minorityshareholders from view of rate of return on investment.The agency theory of dividends presents that the separation of the corporatecontrol and ownership in modern companies would cause agency problems. Thedividend policy can act as a monitoring mechanism, making the operator of thecompany receive the supervision from potential investors, creditors, and owners. Inorder to protect shareholders’ right to dividend distribution, the Company Laws of Brazil, Chile and some other countries stipulate that the company must distribute acertain percentage of profit to shareholders, while the United Kingdom, the UnitedStates established compulsory litigation of dividend distribution system to protect therights of minority shareholders. In China, the external market, including the managermarket, the M&A market, the capital market are not mature enough to fully play arole of constraints. Companies are unlikely to spontaneously take positive dividenddistribution policy.China’s Company Law only admits shareholders’ right to dividend distribution,and limits it to concrete right to dividend distribution. China’s Securities SupervisionCommittee issues a series of administrative rules and regulations, which requirespublic companies to implement a positive dividend distribution policy. It alsostipulates cash dividend distribution policy in the articles of association explicitly, anddemands for the reasons of no bonus and the usage of funds if a company has theability to pay the dividends but refuses to do it. China’s Securities SupervisionCommittee also related dividend policy to fundraising behavior like issuing newshares, in order to constraint the company’s behavior. However, as the periodregulated in these regulations are so long that the public companies can avoidpunishment easily.Compared to continental law system countries, Anglo-American law systemcountries’ protection for shareholders’ rights and interests are in higher level. At thesame time, in Anglo-American law system countries, the company’s dividend policyis more advantageous to minority shareholders, which proves that law has influenceon dividend policy. Based on consideration of equality, justice, interests balance, lawshould bind the company autonomy boundary. So the Company Law should clearlystipulate shareholders’ right to dividend distribution, and introduce compulsorylitigation of dividend distribution system.