Product Market Competition And Cash Dividend Payment Under The Policy Of Semi-mandatory Cash Dividend

Dividend policy of enterprises is a balance between current return to investors and future development.Combined with financing policy as well as investment policy,they are defined as three key financial decision-making approaches of modern corporation management.Providing an appropriate dividend policy has positive effects to the company in maintaining current yield of shareholders and focusing on long-term development of company.In addition,it is a balance of interests between different stakeholders and a reasonable method for positive development of firm.Compared with western capital market,Chinese market is still immature.There are many problems exist in dividend policy of pubic companies.Since establishment of capital market,dividend policies of Chinese listed firms have been planed and implemented in irregular ways with phenomenons of non-distribution and low cash dividend.In order to maintain benefits of minority shareholders and to boost healthy development of capital market,China Securities Regulatory Commission(CSRC)have issued a series of policies since 2001 to link equity refinancing with cash dividend distribution.This action,as known as “semi-mandatory dividend policy”,leads to standardization of cash dividend distribution in Chinese listed firms.The implementation of “semi-mandatory dividend policy” has a series of effects.Firstly,there is an obvious improvement of listed company dividend distribution level,but it also increases the pressure of those companies that need refinancing.On one hand,it increases the difficulties of refinancing firms.On the other hand,it cannot restrain those which have no requirement for refinancing.Xie(2013)argues that dividend level is not just connect with retained earnings.Only if it has free cash in free cash flow,firms can achieve dividend distribution,or it is just a “Ponzi Scheme”-return money to shareholders by using their own investment.Due to the fact that firms locate in different competition environment,and they have different free cash flows,so their capacity of dividend distribution are different as well.Firms that in fierce competition environment usually have less free cash flows,so they need cash to manage companies rather than dividend;For those firms in low competition environment especially in monopoly environment,agency conflict between managers and shareholders is trend to be fierce,so that dividend actually is a reasonable way to solve the problem and it would also earn positive market responds.Therefore,under “semi-mandatorydividend policy”,the same dividend standard for firms that locate in different competition environments has different influences.This paper mainly focus on the differences on dividend willingness and dividend capacity between firms that locate in different competitive markets to further discuss the effects on these firms due to “semi-mandatory dividend policy”.The empirical research of this paper found that the differences of competition environment indeed have effects on dividend willingness and dividend capacity of listed firms.For the firms in fierce competition environment,if they have requirement of refinancing,it is more possible that they will have over dividend distribution in order to meet “semi-mandatory dividend policy”.For those in low competition environment,if they do not have requirement of refinancing,they are more possible to keep dividend level just around “dividend pass level”.