The Catering Theory’s Applicability To The Cash Dividend Policy Of Chinese Listing Company

Since December19,1990Shanghai stock exchange’s establishment, the stockmarket in our country has developed greatly. But looking through the wholedevelopment process of China’s stock market, we can find a phenomenon: the listedcompany issued the proportion of cash dividend is generally low. Some overseasscholars find that the developed stock market in the United States, Britain, Germany,Japan and some other countries also has the phenomenon of cash dividend paymentdropping. Fama (2001) called it "disappearing dividend" phenomenon. Scholars tryto use all kinds of classic dividend theory to explain this phenomenon, but none ofthem gives a perfect answer. Baker and Wurgler (2004) on the basis of behavioralfinance put forward a new dividend theory-catering theory, and they throughempirical study found that the catering theory has the very good explain ability ofthe dividend policy of the United States stock market. Because the stock market ofChina and of American have obvious differences, this paper will study whether thecatering theory is applicable for China’s stock market, whether the catering theoryhas a good explanation ability of listed companies’ cash dividend policy in China’sstock market.This paper first analyzes several classic dividend theory’s deficiency when theyare used in our securities market, and introduces the main content of the cateringtheory. And then analyze dividend payments in the securities market of China andthe characteristics of the securities market. We find that ratio of China’s listedcompanies that pay cash dividend is really low. The China’s securities market hassplit share structure, a surge of medium and the weak of protection of the minorshareholders. Obviously, checking the theory applicability from the perspective ofthe securities market is not stringent. So this design is divided into two parts toempirical test the applicability of the catering theory: Is manager to cater to theneeds of substantial shareholder when they make cash dividend policy? Is managerto cater to the needs of minors shareholders when they make cash dividend policy?In the first part of the empirical analysis in this paper we refer to the method of Wurgler&Baker (2004b), use two stages regression method to carry on the analysis.The empirical results show that managers cater to the needs of minor shareholderswhen they make the cash dividend policy. In the second part of the empiricalanalysis, according to the characteristics of the Chinese stock market, we use factoranalysis and gradually analysis method to carry on the analysis. The results showmanagers also cater to substantial shareholders’ cash dividend demand when theymake the cash dividend policy. This suggests that the catering theory is ofapplicability in such a securities market where equity is concentrated and protectionof minor shareholders is not perfect. That is, the catering theory has a goodexplanation ability of the cash dividend policy of China’s stock market. Finally, thispaper points out that the full text summarize, the deficiencies and the outlook of thefurther research...