The Research Of Correlation Between Required Return To Shareholders, Return On Investment And Cash Dividends

Since the capital market is established in China, comments or suggestions regarding cash dividends of listed companies never end. Especially in the condition where the corporate governance structure becomes more perfect and some legal system more sound, every company comes to finance have to conduct this part carefully. It's not only related to the return of investors, but also about corporate financing and investment decision-making in the course of normal operations. Actually since last year some policies on cash dividends have been released, regulators are increasingly paying attention to the contents of this area.Traditional western study begins with the MM theory and non-MM theory, which various studies are derived from. Shortly afterwards Agency theory and Signaling theory provide the study of dividend with new logic, leading to a lot of valuable experience achievements. With a brief summary of previous research, the paper find another way from the perspective of financial management. According to the basic principle of investment projects, using ROE of next year and cost of equity instead of return on reinvestment, required return to shareholders respectively, the paper analyze the impact of difference between return on reinvestment and required return to shareholders on corporate cash dividends-paying behavior with the sample of 2009-2013 listed companies in Shenzhen Small & Medium-sized Enterprise Board.The paper explains the purpose and meaning of study firstly, after which rationale and literature associated with the dividend policy are reviewed, and then imagines the status quo and development trend of China's listed company's dividend distribution, followed by two hypotheses, proposed to construct multivariate linear regression model by way of empirical and comparative analysis. The conclusion is that when the return on investment in the future is greater than the required return to shareholders, companies tend to lower the dividend payout ratio, increase shareholder wealth, conversely to enhance the dividend payout ratio; while this tendency will be significantly reduced or even no correlation if the two are similar which indicates the difference between return on reinvestment and required return to shareholders can hardly affect dividend payment decision, and companies will primarily weigh other factors.Overall, we discover consistency between theory and practice through the inspection of cash dividends-paying behavior of SMEs. The enterprises could reasonably arrange cash outlay in the mass, simultaneously without violating financial management objectives of maximizing shareholders'wealth, which is in full compliance with the interests of all parties. Although the analysis and processing of this paper is relatively simple, I hope that it helps to reconsider the connotation of cash dividends-paying for SMEs, investors and regulators, promote the recognition towards healthy and sustainable direction.