Study Of Dividend Payment And Over-investment Based On Semi-mandatory Dividend Policy

Investment decision,as one of the company's three major decisions,is the process of value creation of company.It is not only related to the company's development,but also closely related to the interests of investors.In the actual operation and management of the company,the company often can not achieve optimal allocation of resources,resulting in inefficient investment issues.Domestic and foreign scholars generally believe that the agency problem and financing constraints are the main causes of over-investment and under-investment.In modern financial theory,dividend policy has the function of reducing agency cost and signal transmission.Correspondingly,these two kinds of functions formed two kinds of theories:dividend agency cost theory and signaling theory.Therefore,dividend policy may have a certain impact on the company's investment efficiency.In this paper,by combing the relevant literature at home and abroad,the paper studies the effect of cash dividend on the over-investment based on the dividend agency theory and the governance role of cash dividends by the empirical test.In view of our special semi-mandatory dividend policy,the refinancing needs company's cash dividend may have two sides.On the one hand,cash dividends reduce the company's free cash flow,thereby inhibiting the over-investment;On the other hand,in order to cater to the policy and meet the refinancing requirements of CSRC(China Securities Regulatory Commission),companies may be symbolic dividend,and ultimately achieve the purpose of misappropriating,but the result will weaken the inhibition of cash dividend on over-investment.Based on the change of 1996-2010 semi-mandatory dividend policy,this paper studies the governance effect of cash dividend policy of the company with refinancing needs(SEO)and no refinancing needs(NSEO),and then tests the effectiveness of the semi-mandatory dividend policy.We use the data of listed companies in Shanghai and Shenzhen A-share between 1996 and 2010 to test the relationship between cash dividends and over-investment.Firstly,the paper estimates the expected level of investment according to the Richardson model,then combining with the actual investment level of the company to seek out the scale of over-investment.Empirical test verifies the significant negative relationship between cash dividends and over-investment and cash dividends do play a role in governance.Secondly,CSRC recently issued a series "semi-mandatory dividend policy" to link refinancing qualification to cash dividends and the policy requires the company who want to refinance must meet certain conditions of the cash dividend.Compared with the NSEO company,whether the SEO company's cash dividend has a better governance effect?Will intensive policy improve the governance role of cash dividends?To test this suppose,we divide the total sample into refinancing needs group(SEO group)and no refinancing needs group(NSEO group)to investigate the effect of cash dividend on over-investment of the two groups of companies.The study found that,during the entire study period,the cash dividend of the SEO companies have more significant inhibition on over-investment compared to the NSEO companies.Compared to the no policy period,the weak policy period strengthened the NSEO companies's cash dividend governance role,but it reduced the SEO companies's cash dividend governance role.This shows that the SEO companies have the act of catering to the policy.After a symbolic payment of cash dividends to meet the requirements,companies obtain financing resulting in exacerbating the over-investment.Compared to the weak policy period,the intensive policy period improves the governance role of cash dividends of the SEO companies,but it has no effect on the SEO companies.The innovation of this paper is the starting point of semi-mandatory dividend policy.We research different governance role of cash dividend of the SEO companies and NSEO companies in the changing process from scratch,from weak to strong.We take 2001 and 2006 as the policy period boundary point,then incorporate policy changes,refinancing,cash dividends and over-investment into the same research framework to investigate the relationship between cash dividend and over-investment in different policy period so that we can analyze whether the semi-mandatory dividend policy achieves the intended purpose.