Secondary Equity Offerings, Cash Flow Manipulation From Operating Activities And Market Reaction

In the face of the realistic background that China’s listed companies’ dividend will is not strong and the low level of share out bonus, since 2001 China securities regulatory commission linked the refinancing qualifications to the level of dividend distribution. If listed companies did not meet the requirements of dividend distribution, they will not be able to refinance. Scholars call this special dividend provision "semi-mandatory dividend policy". With the implementation of this policy,in order to make the dividend level meet regulatory standards, companies have enough motivations to increase internal cash flow through a variety of means to achieve the refinancing qualification. Whether enterprises with refinancing plan will control cash flow is worth exploring. Investors’ attitude toward the policy can be seen from the changes of the market reaction, especially how the investors’ attitude of those refinancing companies is worth exploring; Cash flow information is an important basis for investment decisions, and studies show that investors can recognize the cash flow manipulation. Thus whether the cash flow manipulation of those refinancing companies can be identified is worth studying. Therefore, under the background of semi-mandatory dividend policy, the relationship among these three issues : the refinancing behavior of listed companies, cash flow from operating activities of listed companies and the market reaction has become a very worthy of being exploded.Based on the extent literature, this paper verifies the relationship among the refinancing behavior of listed companies, the cash flow management through operating activities and the market reaction under the background of semi-mandatorydividend policy by using China A-shared listed firms’ financial data in year from2004 to 2014. The results show that:First, the implementation of semi-mandatory dividend policy will affect refinancing enterprises’ operating cash flow control level. After the implement of the semi-mandatory dividend policy, compared with non-refinancing companies, the refinancing companies’ cash flow management degree is more serious. In particular the implementation of the policy in 2008 has the greatest impact on the cash flow manipulation.Second, this paper emphatically analyzed the relationship between the strongest impact policy and capital market reaction. The regression results show that companies which refinanced at next year have a negative market reaction, which suggests that the semi-mandatory dividend policy was not supported by the companies which refinance at next year.Third, during the window period of the annual report, operating cash flow management degree is negatively related to the market reaction; Cash flow management through operating activities plays a regulatory role on the relationship between the implementation of semi-mandatory dividend policy and the capital market reaction, which indicates that with respect to the cash flow control, policy plays a decisive role on the market reaction during the window period of the Annual Report.This paper explores the the influence of semi-mandatory dividend policy on the listed companies and the degree of support by the capital market from the perspective of operating cash flow manipulation. On one hand, it enriches the research in related fields at the theoretical level. On the other hand, it provides a reference for the improvements of the capital markets, regulatory policy and corporate governance.