The Research On The Effect Of Dividend Tax On Dividend Policy

Dividend, as an important part of profits from the conducting of investment behavior of shareholders, has been receiving extensive attention from theorists and practitioners. A wise dividend policy will not only get shareholders fixed term profits, but also focus on the long-term profits from enterprises’ long-term development, leaving proper endogenous capital for company’s development while distribute shareholders interests. Dividend tax is the income tax based on shareholders’ dividend income. Tax differential theory asserts,"the existence of tax affects personal preference and company dividend policy", i.e. the difference between dividend tax and capital gains tax is the cause of the affects on dividend policy from dividend tax. However, scholars have different results upon the effect of tax on dividend policy, and still there are no accepted conclusions. In China’s securities market, does the existence of dividend tax have an impact on the dividend policy of the listed companies? What kind of impacts? How did the impact occur? We will discuss these questions on the following part of this paper.Since the year2000, China’s dividend tax policy has been through three major changes. The current empirical research on China’s dividend tax are mostly based on the decrease of dividend tax rate in the year2005, but seldom on the dividend tax change caused by the reform of enterprise income tax in2008. This paper chose the data from Shanghai and Shenzhen Stock Exchanges during year2002to2012, including the two reforms of dividend tax rate in2005and2008, researched on the dividend tax’s dividend policy effect from three angles (the behavior of dividend payment, dividend payment rate, and the level of cash dividend payment). Firstly, we will do descriptive statistics on the dividend distribution situation on China’s securities market during the11years, and briefly analyze the change in dividend structure. Then, the698listed companies will be categorized into5groups based on the average dividend payment rate before the reform of dividend tax, and conduct t-test on the average dividend payment rate before and after the reform of dividend tax. Finally, we will do panel regression analysis on the11years’data from447sample firms and build a fixed effect model using STATA, at the same time take into consideration the delay of policy and heterogeneity between enterprises. We treat dividend payment level as dependent variable, the tax policy dummy variable as independent variable, and corporate profitability, solvency, growth, cash position, ownership concentration as control variables.The study found that:(1) the reform of dividend tax rate has a significant effect on the dividend policy of the listed companies;(2) the reform of dividend tax rate affects dividend structure to some extent, which promotes the appearance of listed companies’ dividend behavior;(3) the reform of dividend tax rate improves the dividend payment rate of those listed companies with lower dividend payment rate, but has a negative impact on those with higher dividend payment rate;(4) the profitability and the corporate dividend payment level has a positive relationship, solvency along with growth have a negative relationship with dividend payment level. Eventually, a series of suggestions will be put forward, including intensify the propaganda of dividends, establish reasonable offers for different dividend payment methods, different offers for different segments, and formulate reasonable constraints for dividend distribution.