Influence Of Dividend Policy On Financial Flexibility: Evidence From Listed Small And Medium-sized Enterprises

With economic prosperity and technological innovation,listed small and medium-sized enterprises(SMEs)have come across massive favourable opportunities in the process of development.However,due to the uncertainties of external economic conditions as well as the limitation of organic growth,listed SMEs tend to suffer the failure in external financing and seizing the investment opportunities.Hence,it is vital for listed SMEs to maintain financial flexibility to a certain degree and to reserve the capacity of future financing.Dividend policy,in practice,is a primary factor to influence and enhance the financial flexibility of listed SMEs.In fact,there is abundant domestic and alien research indicating a significant relation between dividend policy and financial flexibility.It is widely argued that dividend policy is a central theory to instruct the enterprises to obtain financial flexibility,and the latter also has an impact on initiating dividend policy.Based on the illustration of dividend policy and financial flexibility,this dissertation analyses several affecting factors to financial flexibility,including whether to issue dividends,which approach,and what amount.Financial flexibility is determined by some intermediate factors,for instance,reserved cash,free cash flow,capital structure,external financing,cost of cash holdings and the balance between retained earnings and spare debt capacity,which are affected by financial flexibility.Besides,firm characteristics such as firm size,stability,profitability,future investment opportunities and stage of growth,as well as the conditions and uncertainties of capital market can also exert an impact on financial flexibility.This dissertation follows the Aimin Zeng's measurement of financial flexibility reservation,considering financial flexibility as a combination of cash flexibility and debt flexibility.Drawing data of listed SMEs between 2006 and 2016,this paper investigates the effect of cash dividend and share buyback on financial flexibility separately.Empirical evidence suggests a negative relation between dividend payouts and cash flexibility and a positive relation between the former and debt flexibility,and that dividend policy has overall an insignificant effect on SMEs' financial flexibility.This paper also attempts to interpret the results and propose suggestions for listed SMEs to optimize the financial flexibility on the basis of the interpretation.The suggestions involve in making a reasonable choice to adapt to the different growth period of the enterprise,optimize the ownership structure,standardize the dividend policy of the corporate governance,rationally determine the quantity of the cash dividend and the way of the dividend payment to avoid the non distribution and maintain the stability of the dividend,so as to expand the financial flexibility by making a reasonable asset structure and financing decision.Channels to promote the development of direct financing and capital markets,and improve the corresponding regulatory system,laws and regulations,and internal and external control mechanisms.