The Firm Life Cycle And Cash Dividend Policy

The firm life cycle is considered as natural beings, because it has a process with birth, growth, maturity, aging and death. In recent years, with the development of the firm life cycle theory, more and more scholars have applied this theory to study the correlation of the respective area, including the relationship between the firm life cycle and dividend policies. Starting from the study of early capital market, the dividend policy is always the focus of research and concern of scholars at home and abroad. A study on correlation between the two found that the dividend policy generally has firm life characteristics in western developed countries. The research carried out in our country later, and compared to the number of research on the market, the study on the SME board and GEM is less. In addition, as China’s capital market is not mature enough, and has a certain particularity, the factors impact the dividend policy is more complicated, we doubt that whether life-cycle theory of dividends can be applied to research on the SME board properly.This paper aims to study and analyze the listed companies from Shenzhen SME board whether its cash dividend policy has a correlation with life cycle stage. At the first, after analyzing the theory of correlation between them and making reasonable assumptions, we choose701listed companies form SME board which are listed from2005to2012as the study sample. Then, by using the method of cash flow patterns, the firm life cycle is divided into four stages, including introduction, growth, mature and decline. Furthermore, we verify the assumptions by using descriptive statistics, Logit regression analysis and multivariate regression method in two aspects: the tendency of dividend distribution and the dividend payout level.The conclusion of this study shows that, the life-cycle theory can’t explain the tendency of dividend distribution and the ratios of dividend payout of the listed companies from the SME board. There is no significant correlation between life cycle and cash dividend policy. Listed companies from SME board distribute cash dividends or not have strong and positive correlations with earnings quality, liquidity, profitability, solvency, the size of enterprise and whether cash dividends already distributed in the last year. The level of SME board listed companies’cash dividend payout ratio has strong and positive correlation with earnings quality, profitability, solvency, the size of enterprise and the level of cash dividends ratio already distributed in the last year. It also has strong and negative correlation with the ability to grow. The life cycle and the cash dividend policy of the SME board listed companies does not have a significant correlation may be caused by the special nature of China’s capital market, the relevant policies which issued by regulators now and then, and affected by the presence of regulators’ powers to distribute cash payouts or symbolic dividends.This is the first study of the correlation between the life-cycle theory and the cash dividend policy about the SME board listed companies adopts cash flow patterns to define firm life cycle stages. In addition to the empirical research, this paper do not adopt most scholars’practices to use retained earnings and investment capital or total assets ratio as a proxy for firm life cycle, in order to avoid financial indicators unity, the limitations and ease of handling. The innovative method of empirical research is that we build a group containing three dummy variables (Lifecycle1, Lifecycle2, and Lifecycle3) which represents four stages of firm life cycle.At the end of this article, we put forward some relevant suggestions from the view of investors, the management of listed companies and securities regulators, according to the final conclusions of this study. This article also reviews and summarizes that the lack of practical experience about relevant research, the integrity of the variables considered, the impact of missing data, and so has limitations, we expect that the further study can solve the problems mentioned above.