Analysis Of The Cash Dividend Policy Of Chinese Public Companies From The Perspective Of Corporate Finance Behavior

Why do public corporations pay dividends? Traditional theories, such as tax theory,information model and agent hypothesis, cannot give a thorough explanation of thedividend puzzle. In2004, a new explanation of dividends was brought forward by Bakerand Wurgler, which was called the dividend catering theory of corporate financebehavior. It relaxes the “market efficiency” hypothesis in the MM dividend irrelevancetheory, and suggests that if the market is efficient, the cash dividend policy should bedecided by corporate characteristics. If it is not the case, rational managers will cater toshareholders’ preferences for the changing dividend in order to improve stock price.Due to different samples and testing indicators of corporate characteristics selected byscholars, analysis of the cash dividend policy with the dividend catering theory has ledto different conclusions. Therefore, in this paper we further the research in the field ofdividend distribution by combining dividend catering theory with the uniqueinstitutional background in China. In addition, we integrate the new life-cycle theory ofdividend payout into the research. From a brand-new perspective, in this paper we haveinvestigated whether the dividend catering theory has explanatory power and how muchpower it possesses for the cash dividend policy of public companies in China.Our research adopts Logistic regression and multiple linear regression models tostudy how investors’ behavior affects the cash dividend policy of listed companies inChina by integrating catering theory and the new life-cycle theory of dividend payout,grouping data of dividend allocation according to RE/TE under group-controllinglife-cycle stages of business, and making full use of2000-2010financial data of A-sharelisted companies in Shanghai and Shenzhen exchanges.This article is divided into two parts from the perspective of behavioral finance. Inthe first part, it adopts the Logistic model to study the relationship between the tendencyto pay cash dividends, and the cash dividend demands of investors. The conclusion isthat the investors’ demand for a dividend is shown as a dividend discount. That is, theinvestors pay a relatively high price for non-payers. For those companies in the samelife cycle, the investors’ demand for dividends will, to a certain extent, have an impacton the tendency to pay cash dividends of listed companies. When the listed companiesare more mature, such an impact will be more significant.The second part of this article addresses the relationship between a willingness to pay dividends and the cash dividend premium. The conclusion is that the dividendpremiums of listed companies are mostly negative. That is, investors are willing to pay acomparatively high price to buy the stock of non-payers. Whichever stage the life cycleof the enterprises is in, the correlation between a cash dividend premium andwillingness to pay dividends is strongly positive. For mature and stable companies, thedegree of correlation will be increasingly significant. Further study also shows that thedividend policy of listed companies in China is mainly affected by the characteristicvariables of firms, including profitability and dividend policy continuity as tworelatively important factors.Our empirical study has shown that the dividend catering theory has relativelystrong explanatory power for the dividend policy of listed companies in China.