Impact Of Profitability And Financial Leverage On Cash Dividend

Dividend decision is one the major decision in financial management. Afirm is to decide what portion of earnings would be distributed as dividend tothe shareholders and what portion of the same would be retained in the firmfor its future growth. Both dividend and retention are desirable but they areconflicting to each other. Generally, a finance manager formulates a suitabledividend policy, which satisfies the shareholders without hampering futureprogress of the firm. Manufacturing companies have huge capital expenditure,needed more capital for expansion and for new technology. These capitalsmostly come as a debt and there is an impact of debt on earnings anddividend.Being based on the study of dividend policy literature, this paper exploresthe factors that influence cash dividend of China’s manufacturing listingcompanies by analyzing the status quo of the dividend paying of thesecompanies. The paper sets cash dividend and dividend ratio as dependentvariables, and chooses factors from the perspectives of profitability, liquidity,grow capability and debt levels as independent variables, and asset size,ownership structure, the years and sub-industry as controlling variables, toanalyze the relationship among profitability, debt level and dividend policyby collecting relative data of manufacturing listing companies from2007to2012. Key findings of the study includes: profitability has strong relationship with dividend policy, debt level and liquidity have relatively strongrelationship with dividend policy while the relationship between growcapability and dividend policy is weak. The study process includesdescriptive statistical analysis, correlation analysis, regression analysis basedon both yearly average of cross section data and full sample of panel data.