| Transaction frictions would increase the cost of “self-made dividend”,which makes dividend policy(especially Cash Dividend Policy)related to company value.When the company’s equity liquidity is limited,investors cannot make dividend,or the cost of "self-made dividend" is too high,the company will pay cash dividend as compensation to meet its liquidity demand(Amihud and Mendelson,1986;Banerjee et al.,2007).However,on the one hand,insufficient equity liquidity is usually related to poor management and financial deterioration;on the other hand,the payment of cash dividends may help to attract investors and improve equity liquidity.Therefore,previous studies are mainly based on the agency theory to analyze the factors and channels of dividend policy from the perspective of governance and operation,and it is difficult to clearly identify the causal relationship between equity liquidity and cash dividend(Pan et al.,2015;Li,2017).Information asymmetry generally exists between the company’s management and external investors,and managers have more internal information about the company’s investment opportunities,profitability,and future cash flow.Cash dividends can be used as a means for the management authority to transmit internal information to the outside world,to signal the company’s future profitability and other related information.The effect of dividend signals is subject to the influence of the company’s internal and external factors such as the information environment,the quality of information disclosure,and the public opinion environment(Aggarwal,2011;Xu,2013;Yang,2017);there is currently no literature that examines cash from the perspective of equity liquidity Dividend signal effect.The split share structure and its reform are unique phenomena in China’s capital market.At the beginning of the establishment of China’s capital market,Shares in the A-shares listed companies were divided into tradable shares and non-tradable shares.The tradable shares account for about 1/3.Investors,who have tradable shares,are allowed to trade openly and freely.The general holders are domestic individuals and institutional investors(i.e.small and medium shareholders).The cash income of investors includes both cash dividend distribution and the capital gains from premium exchange.Non-tradable shares account for about 2/3.The general holders are state and state-owned legal persons(i.e.controlling shareholders).Since equity cannot be listed and traded,non-tradable shareholders mainly use cash dividends as a way to obtain income and tend to use high cash dividends as compensation for equity liquidity restrictions.It was not until 2005 that the government launched the split-share structure reform(hereinafter referred to as“share reform” or “SSSR”)that the above situation changed.The main purpose of the “share reform” is to gradually convert the former non-tradable shares into tradable shares: the company has a lock-up period of at least 12 months after the completion of the share reform,after which the controlling shareholder can unlock the upper limit of 5%,10%,and 100% respectively within three years.In the “share reform”,the initial state of non-tradable shares and the total change in the supply of tradable shares are exogenous,which can be used to clarify the causal relationship between equity liquidity and company cash dividends and to explore the signal effect of cash dividends and its internal logic with corporate value.This dissertation uses the “share reform” as a quasi-natural experiment to analyze the behavior and economic consequences of listed companies in China under the change of equity liquidity.First,examine the impact of equity liquidity on cash dividend payment behavior.The results show that the tendency and rate of cash dividend payments of listed companies have declined after the “share reform”;the controlling shareholder’s liquidity restrictions are lifted after the “share reform”,correspondingly weakened the motivation to use cash dividends as equity liquidity compensation.Next,I examine the impact of equity liquidity on the signal effect of cash dividends.Specifically,first,my dissertation examines the information content of the dividend policy.Signal theory shows that if cash dividends can transmit the signal of the real state of future earnings,they can represent the future profitability;the controlling shareholder’s liquidity restrictions are lifted after the “share reform”,and the wealth of controlling shareholder is closely related to the stock price.Companies with better expectations are more likely to use cash dividends as a signal of future performance.The empirical results show that the cash dividend and its increase after the “share reform” will affect the company’s earnings sustainability.Second,this paper examines the market response of investors to the dividend policy.The empirical results show that the company’s distribution behavior after the “share reform” affects investors’ judgments on the company’s value.Finally,this article makes a further study on the relationship between equity liquidity,dividend policy,and company value.Cash dividends are mainly the liquidity compensation for the controlling shareholder before the “share reform”because of liquidity restrictions.It was a sub-optimal dividend policy,which would reduce the company’s value;the motivation of compensating the controlling shareholders’ liquidity through cash dividends is weakened after the “share reform”,and the company can adjust cash dividend payments and invest funds into projects with a net present value greater than zero,which will have a positive impact on the company’s value.The empirical results show that there is an inherent logical connection between the adjustment of dividend policy and the increase of company value after the change of equity liquidity.The research in this dissertation has both theoretical and practical significance.In terms of theoretical significance,first,I use the quasi-natural experiment of“share reform” to test the causal relationship between equity liquidity and dividend policy,and to enrich the relevant literature on liquidity theory by using the liquidity shock caused by external policies;second,the research on the relationship between equity liquidity and dividend signal effects reveals the logical relationship between equity liquidity and cash dividend signal effects,and enriches the relevant research on dividend signal theory;third,the study of companies’ current behavior before and after the “share reform” and its economic consequences has made incremental contributions to the theory of transaction friction,dividend policy,and corporate value.In terms of practical significance,this article has certain enlightenment for securities regulatory authorities,listed companies,and investors.First,it provides a theoretical reference for regulatory authorities to set dividend distribution regulatory measures,for example,for listed companies with better equity liquidity,the supervision of its mandatory dividend distribution should be appropriately relaxed,because investors can “self-made dividends” in a relatively economic way,and the signal effect contained in the company’s independent decision on whether to distribute dividends can also help improve the valuation ability of the capital market;For listed companies holding restricted shares,they should focus on whether they maliciously distribute dividends to compensate for their own liquidity and harm the interests of small and medium shareholders.Second,for the decision-makers of listed companies,the relevant conclusions of this dissertation will help them gain insight into the relationship between equity liquidity,dividend signal effects,and corporate value,so as to help them better arrange dividend decisions and effectively release internal information related to corporate value.Third,for investors,it will help them to further use the signals about the companies’ future value transmitted by companies’ current behavior to improve the ability of basic accounting information such as cash dividends and accounting earnings to integrate into stock prices. |
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