Earning Structure, Liquidity Distribution And Dividend Policy Of Parent-Subsidiary Company

The behavior of Chinese company’s dividend distribution showing a "Chinese-style dividend puzzle". Previous studies mainly based on combined data from the agency theory and signal theory to explore the influencing factors and economic consequences of the dividend distribution, however,it was always neglected that the surplus structure and cash distribution of the parent company and subsidiary affect the dividend distribution of listed companies profoundly. Therefore, this paper is trying to study the effect of dividend policy(whether or not distribut the dividend, mode and strength of the distribution) from the mobility distribution of the parent company and subsidiary. Furtherly,study the refunding needs of the parent company and subsidiary, but also the relationship between the surplus of parent company from the major shareholders’control and subsidiary and the contribution of cash flow.It has been studied that the company will choose how to allocate the company’s profit and cash based on the interests of shareholders’ orientation and the opportunities of the company’s growth.The existing research generally studied the merger entirety of listed companies,and didn’t distinguish the attribution between consolidated earnings and cash flow in the the parent company and subsidiary,so there is confusion when determine the surplus of dividend distribution and the cash flow basis.The control of parent company and the surplus and cash flow’s contribution of subsidiary determine the distribution of consolidated earnings and cash flow between the the parent and subsidiary companies.It means that consolidated earnings and part of cash flow won’t be dominated by the parent company,so the surplus of parent company’s dividend and cash flow basis change, thereby affecting the dividend policy choices.In the company who has high long-term equity investment, the disposable earnings and cash of parent company is restricted,so the company tend not to cash dividends and select non-dividend policy; under the premise of consolidated cash flow,the company whose excess liquidity is concentrated in the parent company tend to cash dividends and choice the non-dividend dividend policy lessly; However, the holding level of the consolidated cash flow and the distribution between the parent and subsidiary companies will not affect the intensity of the cash dividend distribution. In addition, the demand of refinancing will promote the contribution of parent company’s cash flow to subsidiary;Finally, the higher control of the final controller, the lower surplus of subsidiary to parent company and contribution of cash flow,so as to harm the interests of minority shareholders.The academic value and policy contribution of this paper is:Re-analyzed how cash flow basis of profit affect the choice of dividend policy from the mobility distribution,and provide a new explanation for the dividend policy of listed companies;The paper considers that the reasonable dividend distribution policy should base on the previous year profit of parent company,and remove the internal affiliate transaction in the parent company’s income statement when preparing consolidated financial statements,then make a comprehensive judgment after take into the full consideration of the subsidiary’s current and future dividend capacity.