Research On The Relationship Between Ultimate Control Rights, Free Cash Flow And Cash Dividend

Dividend policy, as one of the important decision-makings in the company’s financial management, has been attracting attention from scholars at home and abroad. Academia although has an immense number of conclusions about dividend policy, but it could not have reached consensus in many aspects so far. "Dividend puzzle" could not be answered yet. China’s securities market has made great progress in all aspects since it was formed 20 years ago. But some listed companies couldn’t use this policy or could just use it superficially. And some major shareholders in listed companies harness this policy as a tool to tunneling the company’s fortune, which has seriously damaged the interests of small investors.This article, by sorting out and reviewing the research about dividend policy and research on Ultimate Control Rights Theory and Free Cash Flow Theory, suggests that the company’s free cash flow and its cash dividend has a close relationship; at the same time, the listed company’s ultimate controller will also take control of the company’s dividend policy depending on its power. Based on the above thinking, this article, regarding China’s A-share listed companies as the research object, proposing hypothesis, collecting related data, taking descriptive statistical analysis, correlation analysis and empirical analysis with multivariate linear regression model, focuses on the research about the relationship between ultimate controlling right, free cash flow and cash dividend of Chinese listed companies.The empirical results show that:Equity Free Cash Flow of Listed Companies in China has a significantly positive impact on cash dividend, indicating that the company would consider the level of free cash flow when distributing cash dividends and the more cash flow emerges, the greater amount of cash dividends will be; the proportion of controlling power of ultimate control person impose a significantly positive impact on cash dividend, indicating that as the proportion of ultimate controlling power rises, it would tunneling more fortune from the company; at the same time, as the proportion of ultimate controlling power rises, it would improve its capability to control the company’s free cash flow, so that it could force companies to spit out free cash flow by distributing cash dividend in order to tunneling the company and to mitigate the first class agency problem. At last, this article finds out that when distributing cash dividend, companies could also take into account some relevant factors, such as its own profitability, capital structure, company size and so forth.According to the review of the relevant theories and empirical research results, this article has proposed some recommendations based on the laws, regulations and system in securities market.