Research On The Anchoring Effect Of The Cost Of Capital In Chinese Corporate Dividend Decision

Dividend decision is one of the three listed company’s financial decisions. It is one of channels for the shareholders to obtain return on investment. It is also one of the important factors that investors need to consider when they invest the listed company. So, dividend decision relates to the acquisition and protection of interests of investors, then effects long-term development of the listed company.It is several decades since Lintne(1956) pioneering researched on dividend decision of the listed companies. Scholars proposed various theories to explain dividend payment behavior of companies and used the empirical data to verify these theories. Under the premise of a perfect and efficient capital market, Milier and Modigiiani(1961) agreed that no relationship between dividend decision and corporate value, that is MM dividend irrelevance. Since then, many scholars came up with many theories(such as “Bird in hand”theory, Tax difference theory, Clientele effect theory, Signal transmission theory, Agency theory, Life cycle theory and Behavioral dividend theory) by continuing to relax the completely market hypothesis in MM dividend irrelevance. Foreign scholars have extensive research on corporate dividend decision, Chinese scholars studied on dividend decision starting later. Based on the characteristics of the listed companies’ dividend decisions, many scholars researched on the size, earning performance, investment opportunities, corporate governance, legal factors, cost of capital and so on. The results showed that these factors have important influence on the development of corporate dividend decision. This paper builts on the actual status of China’s listed companies and theory development, uses empirical analysis and normative research method, studies the cost of capital anchoring effects on the dividend decision and how to play the anchoring effect of the cost of capital on the dividend decision. The aim of the study is able to guide the formulation of corporate’s dividend decision and enhances management’ and investors’ perception of the cost of capital.Firstly, this paper introduces the background and research issues, then we introduces the theory of dividend and related documents. Secondly, we define the meanings ofdividend decision, the cost of capital and anchoring effect. Then we review the anchoring effect of the cost of capital in dividend decision. And on this basis we analyse the theoretical basis and then puts forward the hypotheses. Thirdly, This paper studies the cost of capital anchoring effects on the dividend decision by using data of A-Share listed companies listed in Shanghai and Shenzhen Stock Exchanges in the period 2004-2012 as a sample. Finally, we find that the cost of capital has dynamic anchoring effect on the dividend policy, the static anchoring effect is weak.The innovations of this paper are:(1) Based on the existing literature, we used the anchoring effect on corporate financial decisions;(2)This paper starts with the important factor which influences the corporate financial decision making, then discusses the mechanism of the cost of capital has anchoring effect on dividend decision, and empirically proved whether the cost of capital has the anchoring effect on corporate dividend decision;(3) In terms of estimating the cost of equity capital, we refer to a variety of methods of relevant literature and combine the different algorithms. It is showed that the results of cost of equity capital have high accuracy and applicability.