The Change Of Financial Leverage Five Years After Dividend Increases

Both dividend and capital structure are classical problems for corporate finance,which have been studied by scholars from varied ways.Different from lots of traditional theory studying dividend-receivers,such as what they will interpret the dividend-paying behavior.What we will do with the dividend is focusing on dividend-payers.There must be dividend-payers and dividend-receivers as dividend payment is one way of resource sharing.And we want to study how company' s capital structure changes after dividend increases and what factors affect then.Besides,with the acceleration of the economic development,operating results of companies is,getting better and better.And with the deepening reform of A-share market,China Securities Regulatory Commission has issued a series of policy measures.Managers are getting more conscious of paying dividends.The number of companies that paying dividends is growing.So it means a lot to find out the change of capital structure after paying dividend.We divide firms with large change into three groups:dividend increases greater than 12.5%,dividend decreases greater than 12.5%,dividend initiating firms.The left is the firms whose dividends have not changed.We focus on the firms which increases dividend.It's the active choice of increasing dividend,not the passive effect of circumstance.So it indicates the active decision on company's capital structure.Exactly,we studied the change ofcompany' s capital structure five years.after dividend policy,and what factors affectthose changes.Our research method is based on the trade-off model of capital structure,with tobit regression getting the fitted value to be the proxy of optimal capital structure in stage one.In the second stage,we use the regression to predict the 5-year leverage change and find out the variables related to those leverage changes.We find that when firms largely increase dividend,their leverage tends to decline in five years.Because those firms would choose to finance with debt less.When we divide the total sample to different sub-samples,we get that the firms that increasing dividend didn't refinance from equity market,which means.the possibility of dividend increasing is to refinance is excluded.Further,as the statistics shows,those dividend increasing companies have more cash flow and changes of cash flow than dividend not changing firms.So,we speculated that the dividend increasing firms tend to use growing internal cash flow as the operating cash flow,to finance from internal funds,which leads to the reduction of leverage.And we findthat as opposed to dividend unchanged firms,those firms have less selling expense,more profitability,more cash flow,larger size of asset,and higher sustainable rate of growth.We can concludes that dividend increasing firms tend to delivery positive information about its operating to investors.And the positive information of companies conforms with their business performance.Besides,the financing behavior of those dividend increasing company support the pecking order theory,using internal funds more to decrease the information disclosure to investor.One of the creativity of this paper is that we study the big increase dividend and capitalstructure in Chinese A-share market firstly.We combine dividend and leverage,because there are not so much research about those two subject in domestic academia.Meanwhile,there are also a lot of disadvantages of my paper.For example,agency theory is.not considered to explain the financing behavior of dividend increasing firms in this paper.