Agency Problems Of The Controlling Shareholder,Cash Dividends And Dynamic Adjustment Of Capital Structure

The trade-off theory of capital structure has experienced the development from static trade-off theory to dynamic trade-off theory.The early research focused on the tax shield effects and expected bankruptcy cost of debt and pay much attention to the target capital structure and mean reversal phenomenon.With the adjustment cost of capital structure introduced into trade-off theory,scholars have found that the dynamic model of capital structure adjustment has a stronger explanatory power to the reality.Literatures on the theoretical model of capital structure adjustment and the speed of capital structure adjustment has shown an explosive growth,and the trade-off theory has been developed unprecedentedly.In recent years,some scholars have studied the influence of agency cost on the dynamic adjustment of capital structure from the view of agency problems of manager,which has become a new research direction of dynamic trade-off theory.Morellec et al.(2012)integrates the agency cost of manager into a dynamic trade-off model.The research finds that the agency cost is the most important factor in the capital structure adjustment,and the corporate governance mechanism can restrain the manager's occupation to some extent to optimize the capital structure decisions.Considering the characteristics of the centralized ownership structure of Listed Companies in China,this paper studies from the perspective of agency problem of controlling shareholders.We construct a theoretical model of the dynamic adjustment of capital structure to analyze how the agency cost of the controlling shareholders affects the adjustment of capital structure.At the same time,the cash dividend is incorporated into the analysis framework of the dynamic adjustment of the capital structure,combining the governance of the cash dividend to the agency problem of the controlling shareholders.Further,this paper uses empirical methods to test the hypothesis proposed by theoretical analysis and examines the influence of the agency cost and cash dividend on the speed of capital structure adjustment and makes contribution to the trade-off theory.This study finds that the agency problem of controlling shareholders has a negative impact on the speed of capital structure adjustment,which will be speeded up with the issuance of cash dividends,and this effect is more significant when the agency problem of controlling shareholders is more serious.This indicates that cash dividend as an alternative corporate governance mechanism can play a role in restraining the agency problem of controlling shareholders.Further studies have found that,compared with over-leverage companies,both the negative impact of the agency cost on the speed of adjustment and the positive effect of cash dividends on the speed of adjustment are stronger in under-leverage companies,and this effect is more significant when the agency problem of controlling shareholders is serious.This indicates that the controlling shareholders tend to choose lower financial leverage to avoid the disciplining effects of debt,which leads to the unwillingness to adjust the capital structure for under-leverage companies.The agency problem of the controlling shareholders may be an important reason for the debt conservatism.However,the governance role of cash dividends can prompt the controlling shareholders to adjust the capital structure more actively,thus gradually approaching the optimal capital structure of the company.