Economic Consequences Of The Differential Cash Dividend Policy

Since the 1990s,the dividend payment ratio in Chinese capital market has experienced continued drift of the dividend payment ratio.In the meantime,the number of companies don’t allocate cash dividend keeps increasing.In order to enhance the consciousness of paying cash dividends and guide value investing methodology,the CSRC has issued a series of cash dividend supervision policies since 2001.Studies on cash dividend regulatory policy have always been the hot topic which the domestic theorists and the practical realm pay attention on.The existing research on cash dividend supervision policy usually dicusses short-term market reaction and payment behavior,but the research on the improvement of enterprise management behavior,investment behavior,financing behavior and economic consequences of resource allocation efficiency after the change of payment behavior is quite rare.In addition,existing literature usually studies on the background of the semi-mandatory dividend supervision policy,which was carried out in 2008.We have not yet found any research which studies the economic consequences of the lastest promulgated differential cash dividend policy.This new supervision policy is an improvement on the previous semi-mandatory dividend supervision policy.It highlights the effects of firm growth and expected capital expenditures on the cash dividend decision,in order to overcoming the "regulation paradox" caused by the previous policy and guide listed companies to make proper dividend decision according to their own development characteristics.However,it is noted that the new cash dividend policy does not specify the standard of high-growth company and low-growth company.It does not provide the method of determining whether there is an arranged major capital expenditure or not,either.So the new cash dividend policy is a "soft constraint" in essence,the policy executive strength will vary for each company.Corporate governance is a set of institutional arrangements about the balancing relationship between the board of directors and managers and other stakeholders,which is designed to solve the agency problem arising from "the separation of ownership and control" and realize the the maximization of enterprise value.Existing research shows that the level of corporate governance is closely related to the cash dividend payment ratio,and effective corporate governance mechanism can prevent managers from unreasonably retaining cash within the company.In this way,corporate governance mechanism can not only reduce agency cost and promote firm value,but also can help make proper cash dividend decision.In short,corporate governance mechanism is likely to affect the implementation of the new regulation policy by influencing enterprise agency costs.Then are there any different impacts between listed companies whose governance level are different after the new cash dividend policy?We haven’t found any related literature on this research so far.Based on the sample of A-share listed companies in our country between 2011-2014,this paper empirically tests the economic consequences of the differential cash dividend policy.The results show that,first of all,from the view of maket reaction trends,the CAR curve is like an "inverted U",which means the maket attitudes on this new policy experienced from "expect" to "disappointed".In addition,the CAR of low-growth companies is significantly higher than the CAR of high-growth companies,and the CAR of companies with high govenance level is significantly higer than the CAR of companies with low govenance level.Second,from the view of dividend behavior,compared with the period before policy conduction,the inhibiting effects of firm growth and major investments significantly enhanced after the policy conduction.Furthermore,the higher the corporate governance level,the better the new supervision policy was implemented.Finally,from the point of investment behavior,the overall investment efficiency of listed companies is significantly enhanced.The conduction of the new policy reduces the level of over investment of the low-growth companies and eases the under investment problem of the high-growth companies.Furthermore,considering the differences in the levels of corporate governance between different companies,we found that the differential cash dividend policy failed to effectively enhance the investment efficiency of listed companies with low-level governance,but for companies with high-level governance,the investment efficiency improves significantly after the conduction of the new policy.On the one hand,our research verifies the applicability of the life cycle theory and free cash flow hypothesis in China;On the other hand,our research enriches the literature on the economic consequences of cash dividend regulation and corporate governance.In addition,it also provides specific quantitative basis for the subsequent improvement of the new cash dividend supervision policy.