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A Study On Relationship Between Cash Dividend And Investment Cash Flow Sensitivity

Posted on:2017-01-12Degree:MasterType:Thesis
Country:ChinaCandidate:J YangFull Text:PDF
GTID:2309330485474769Subject:Financial management
Abstract/Summary:PDF Full Text Request
Investment and dividend policy have always been an important content of enterprise financial field, and the internal cash flow as a middle factor connecting the two relationships will directly affect the enterprise investment behavior. Asymmetric information under the condition of imperfect capital market makes the enterprise exist a certain degree of financing constraints, resulting underinvestment; And the separation of ownership and management in modern enterprise raises the agency conflicts between managers and shareholders, thus in the case of free cash flow, managers might appear overinvestment behavior because of self-interest. But whether underinvestment caused by the financing constraints or overinvestment caused by agency conflicts will make the enterprise investment spending restricted by the internal cash flow, and then generates investment cash flow sensitivity. At present, for the existence of this point, domestic and foreign scholars have basically reached a consensus, but for the causes of its existence, there is still some controversy.Dividend policy is an important part of the optimal contract of enterprise, and the appropriate cash dividend policy will play an important role in the governance, thus forming two important theories, namely dividend agency cost theory and dividend signal theory. In both theories, cash dividend can not only reduce cash flow held by the managers, and inhibit overinvestment behavior caused by agent conflict, but also reduce the degree of information asymmetry, and ease the underinvestment behavior caused by financing constraints through dividend signal transmission function. Although theoretically, two theories can effectively reduce the investment cash flow sensitivity and play a governance role, but the desired effect of cash dividend governance needs to do further studies in our particular market environment.This paper selects A-share listed companies in China from 2010 to 2014 for the initial research samples. By screening, we remove the abnormal cash dividend and non-dividend companies. The result confirms the positive relationship between investment and internal cash flow that China’s A-share listed companies exist investment cash flowsensitivity. On this basis, we introduce the cash dividend per share and its interaction term, further test the relationship between cash dividend and investment cash flow sensitivity. The empirical results verify cash dividend’s governance role that cash dividends can weaken the relationship between investment and internal cash flow and the reduce sensitivity.The above research is only from the perspective of whether to issue cash dividend to study the governance role, and does not take into account the impact of the cash dividend stability. Therefore, in the following, we will focus on the relationship between cash dividend stability and investment cash flow sensitivity. Based on this, we re-screen the sample and remove the cash dividends instability’s samples. But the result has come to the opposite conclusion that the cash dividend stability will increase investment cash flow sensitivity. This shows that dividend signal function does not play the role in the current market environment of China. A large number of stable cash dividends will inversely cause a shortage of internal cash flow, thereby exacerbating the underinvestment caused by financing constraints. Therefore, we try to divide samples with positive and negative free cash flow as a standard to test the relationship between cash dividend and investment cash flow sensitivity in different cash flow. Empirical results show that, regardless of the enterprise free cash flow is positive or negative, cash dividend stability will increase investment cash flow sensitivity. Although cash dividend signal effect does not play a role, but by comparing the interaction coefficient, we find that the free cash flow is the important reason that affects the investment cash flow sensitivity. When the internal cash flow is insufficient, more stable cash flow will exacerbate investment cash flow sensitivity.In view of the above conclusions, this paper presents relevant policy recommendations, enrich and develop the governance role of dividend research results. There is important theoretical and practical significance for studying the investment and financing behavior and improve the investment efficiency of the enterprises in the future.
Keywords/Search Tags:Cash dividend, Cash dividend stability, Investment cash flow sensitivity, Dividend signaling theory, Dividend agency cost theory
PDF Full Text Request
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