Study On The Effect Analysis And Testing Of The Dividends In State-Owned Enterprises

1.The main purpose of this studyState-owned Assets Supervision and Administration Commission of the State Council (S AS AC) and Ministry of Finance issued Administrative Policy of the SOEs'capital operation income in 2007. The Administrative Policy regulate different dividend rate for three types of State-Owned Enterprises. The generally competitive SOEs use dividend rate of 5% and resource-based SOEs use dividend rate of 10%, military SOEs and strypped-down scientific research institute turn over profits three years later. From then on, SOEs ended the history of not turning over profit about 13 years.If agency cost theory of dividend can explain Chinese SOEs'dividend policy, it is very important in the field of SOEs'dividend policy and corporate governance that should be studied in depth. The dissertation is composed of three main study purposes.(1) Based on the special institutional background of our country, this paper try to deepen theoretical study on cash dividend policy of SOEs and provide a new perspective from the management of agency relation to resolve the issue of dividend policy of SOEs'effect. This is the first purpose of this paper.(2) Agency cost theory of dividend is the present popular theory in academia which can explains the benefit of cash dividend in reducing agency cost of free cash flow. Since the payout of cash to shareholders can reduce agency costs of free cash flows grasped by the management, it can reduce the agency cost. Chinese SOEs exist high agency cost based upon the special complicated principal-agent relationship between state owner and the inside management, in fact the manager is the actual controller. The SOEs'cash dividend as a type of dividend policy, how the effect on inhibiting the agency cost is this paper's research point. Two main forms of agent problems are over-investment and non-pecuniary compensation. Therefore, this paper attempt to find the theoretical evidence of SOEs'cash dividend can reduce the agent cost through empirical study.(3) Since there is information asymmetry between state shareholder and inside managers, managers will reduce annual report profit by earnings management, which can avoid decreasing the free cash flow they grasped. Therefore, earnings management can affect and weaken the inhibiting effect of SOEs'cash dividend on agent cost. How to improve the cash dividend policy of SOEs is the third purpose of this dissertation.2. The primary study content and conclusionThis dissertation is composed of eight chapters:Chapter one is an introduction. This part covers the paper's research background, research purpose, research thinking and logical framework, main research content and main contributions.Chapter two is a review of the literature related to the main study purpose. First of all, this chapter has done a summary on the overview of domestic and foreign study of dividend policy of SOEs. Secondly, this paper overviews the domestic and foreign empirical research on agency cost theory of dividend. Thirdly, this paper overviews the empirical research on motivation of earnings management induced by contract and dividend. Accordingly, this dissertation proposes breakthrough point and the study perspective:effect analysis and testing of the dividends in State-Owned Enterprises.Chapter three is current description of SOEs'dividend from the perspective of domestic and foreign countries. Firstly, this paper describes the capacity of earnings in chinese different central SOEs groups, local SOEs groups and SOEs' listed Companies. Secondly, this paper describes the Chinese SOEs'dividend which central and local SOEs groups and SOEs'listed companies paid out recent years and describe the current Characteristics of SOEs'dividend. Thirdly, based on a survey of SOEs'dividend in foreign countries, this paper compares and analyzes the Characteristics with domestic SOEs' dividend so as to summarizing the features respectively.Chapter four is the theoretical analysis of effects of SOEs'dividend. There are three main sections in this chapter. The first section is the theoretical logic starting points, including the property rights theory, state finance theory and free cash flow hypothesis. The second section analyzes the inhibiting effect of dividend of SOEs on over-investment and non-pecuniary compensation from the perspective of management agent problem in SOEs. The last section analyzes the earnings management will affect and weaken the inhibiting effect of dividend of SOEs. Management try to keep sufficient free cash flow as possible as they can. This free cash flow will benefit them but weaken the dividend of SOEs'inhibiting effect on agency cost.Chapter six is empirical study on benefit of the SOEs'dividends in reducing the over-investment. This paper adopts Richardson model to estimate the over-investment. The result verifies the hypothesis that put foreword and show that high cash dividend significantly reduces the level of over-investment in the sample of state-controlled listed companies. Finally, we adopt different measurement as the proxy for over-investment to test our empirical findings, and still find results very similar to our previous findings.Chapter six is empirical study on benefit of the SOEs'dividends in reducing the non-pecuniary compensation. This paper adopts administrative expenses rate as a proxy for non-pecuniary compensation. The results show that high cash dividend can significantly reduces level of non-pecuniary compensation in the sample of state-controlled listed companies. Finally, we adopt different measurement as the proxy for over-investment to test our empirical findings, and still find results very similar to our previous findings.Chapter seven is the empirical study on testing whether earnings management exists after dividend policy of SOEs issued. Adopting adjusted Jones model to estimate the level of earnings management, this paper tests the feature of discretionary accruals after SOEs implement the dividend policy. The results show that the discretionary accruals as the proxy for earnings management turn out to be significantly negative, which suggests that the managers using earnings management to reduce the dividends to state shareholder in order to decrease the expenditure of free cash flow. This will weaken the dividend policy of SOEs' restrictions effect on the management agent cost.Chapter eight is policy implications and the conclusion of this study. First of all, this chapter gives an advice from the financial point of view on the policy of SOEs'dividend policy. The government should construct the system of multivariate statistics which should put accounting numbers to be the basis of dividend and Put free cash flow to be the reference index in order to improve the credibility of accounting profit. Second, the government should audit financial budge of SOEs strictly and introduce the rewards and punishment mechanism. Finally, the government should construct more flexible dividend policy that including fixed and variable dividend ratio.3. The main contribution of this dissertation(1)This paper puts state ownership, management agent cost and dividend policy of SOEs into a unified framework, which gives a reasonable explanation of the relationship among them and provides more scientific and empirical evidence to the cash dividend policy of SOEs. This paper gives a scientific analysis to study the dividend policy of SOEs from a new angle of corporate governance and agency relationship.(2) This dissertation verifies that dividend policy of SOEs policy induce managers to manage earnings. Managers of SOEs reduce dividend to state shareholder through earnings management and furthermore weaken the restriction effect on over-investment and non-pecuniary compensation. In the present situation of SOEs, the dividend policy based on the accounting report earnings will induce the management opportunistic behavior.(3) This dissertation concludes three main proposals to enhance the implementation effect of dividend policy of SOEs. First of all, this chapter gives an advice from the financial point of view on the policy of SOEs'dividend policy. The government should construct the system of multivariate statistics which should put accounting numbers to be the basis of dividend and Put free cash flow to be the reference index in order to improve the credibility of accounting profit. Second, the government should audit financial budge of SOEs strictly and introduce the rewards and punishment mechanism. Finally, the government should construct more flexible dividend policy that including fixed and variable dividend ratio.