A Research About Listed Companies’ Cash Dividend And Future Earnings Volatility

Dividend policy is one of the most important financial decisions and a classic topic about the theory of company finance. The traditional dividend theories in some extent explain the dividend policy, but their effects are more or less controversial. Traditional theory do not relax the assumption of the hypothesis of rational person, and ignoring the influence of investor behavior preference may have on the dividend policy. This paper will discuss the influence of investor behavior for dividend policy, as well as the effect of cash dividend signaling under the different condition of dividend preference.This paper takes Chinese listed Companies’ data as the study samples, using the cash dividend premium as the measurement of investor preference, studies the effect of the attitude of investors on dividend policies and the relationship between changes of cash dividends and future earnings changes of the companies from the angle of dividend catering theory using empirical research. The results show that the management of the listed Companies making cash dividend policies will take into account the investors’ preferences. The dividend premium and the decision of the payment of cash dividends are positively related and when investors prefer the companies to pay cash dividends, the listed companies prefer to pay cash dividends. And when the dividend premium is low, management have no strong motivation to pay dividend, and tend not to pay cash dividends. Under this condition, increase cash dividends signals future earnings growth of the companies, and there is a positive correlation between the dividends increase and future earnings increase. When the dividend premium is high, management have the strong motivation to increase the dividends in order to meet investors’ demand for cash dividends, so the positive correlation between cash dividends increase and future earnings increase become weak, which increasing the cash dividends do not signals the future earnings’ growth, and which supporting the catering theory of dividend. But under condition of high dividend premium, there is a positive correlation between the decrease of cash dividends and the reduction of future earnings. Management have the strong motivation to increase the dividends and cash dividends reduce indicates that future profitability of the company will become weak, and the positive correlation become weak with the dividend premium decrease.