Propensity To Pay Cash Dividends And Catering Theory

The dividend policy of listed companies has been a long-term focus of attention of the public and academia. Explain the behavior of the company’s dividend policy and the market reflects the have a wide range of debate and discussion. Dividend policy is whether the joint-stock companies pay dividends, payment of how much and when payment of dividends and other aspects of policy, is one of the core of modern corporate finance activities. The dividend irrelevance theory of Miller and Modigliani (1961):In a perfect market, the value of the company’s stock price depends entirely on the profitability of their investment decisions, and dividend payout level. However, the series of stringent assumptions required by the MM theory, such as non-existent tax, complete information, incomplete contracts, transaction cost is zero, apparently with the actual distance. Thus, under the assumption that certain prerequisites to relax the MM theory, the researchers tried various explanations closer to reality, and formed a series of modern theories on dividend policy. Subsequent customer effect theory is that the dividend tax rate is higher than the capital gains tax rate, relaxation of the MM theory "revenue difference" hypothesis. Signaling theory and agency cost theory to relax completely symmetrical and complete contract, agency costs "hypothesis.40years later, only MM theory has not been thoroughly examine and challenge the assumption that "market efficiency".Baker and Wurgler (2004) by relaxing the assumption of market efficiency in the MM theory, first proposed to cater to the theory and an empirical test. Cater to the theory that reality only limited arbitrage; the existence of bounded rationality, making irrational demand dividends can affect the stock price caused by investor sentiment (investor and sentiment) to produce the dividend premium; rational managers of listed companies efforts to identify and develop appropriate dividend policy to cater to investors in the market demand for this change over time. Cater to break through the constraints of the traditional theory of corporate finance theory, has greatly enriched the company’s dividend policy; inventive, abandon classical Finance abstract away the emotion, imagination and behavior research methods from the behavioral finance perspective, give full consideration to the role of the market participants’ emotional, cognitive, psychological factors, and provides a new approach to explain the listed company’s cash dividend payout tendency.In recent years, began to appear a few literature test to cater to the applicability of the theory for the Chinese stock market. However, due to our special ownership structure and weak legal protection, and selected samples of different academics and corporate characteristics test indicators are not the same, dividends to cater to the theory of empirical test results are not consistent. Thus, the split share structure reform as an opportunity to2006-2010all the Shanghai and Shenzhen A-share annual distribution plan, two factors control the ownership structure-stock liquidity and equity concentration, as well as some key corporate characteristics of indicators such as profitability, asset liability ratio, firm size, cash flow, growth potential impact on the basis of demand from the investors point of view to starting the research management of the Company issued a cash dividend of motivation to test the split share structure reform to cater to the theory paid cash dividends of listed companies in China to explain the intensity of the tendency of the status quo.The results show that the higher cash dividend investors given premium, the company is more inclined to pay cash dividends. In other words, to cater to the theory of the listed company’s cash dividend payment tend to have strong explanatory power. This means that the management of Chinese listed companies in deciding whether to pay cash dividends, may take into account the speculative demand of market investors in the company’s shares on the dividend policy change over time, and dividend decisions will to some extent up to meet market investors in such demand. The study results also showed that more concentrated equity, profitability is the stronger, larger, more abundant cash flows for listed companies, the more inclined to pay cash dividends; the higher the proportion of stocks in circulation, more investment opportunities (growth), debt smaller the heavier the burden on listed companies the possibility of payment of cash dividends. These conclusions are supported by the empirical results of the existing dividend policy theory.However, to cater to the theory, after all, only the behavioral finance applications, and can be established under the relatively strict assumptions, can eventually be widely recognized as the best theory to explain dividend policy remains to be tested. Its theoretical limitations:first, to cater to the theory explains the tendency of the company to pay cash dividends from the overall level, but did not discuss efforts to pay cash dividends because the dividend premium does not reflect the dividend payment fluctuations; to cater to the theory assumes that managers are rational, able to weigh the pros and cons between the current stock mispricing arising from short-term gains and long-term operating costs, which cater to the investor preference for cash dividend policy. This seems not quite reasonable, the manager is non-rational, an emotional animal. However, to meet the theoretical system is not perfect in many aspects, the test model could be improved, all observed phenomena can not be reasonably explained from, but after all it is for us to better understand the phenomenon of dividend distribution to provide a new perspective.