Research On The Relationship Between Free Cash Flow And Cash Dividend Policy From The Perspective Of Managerial Entrenchment

Dividend policy is one of the most important financial policy,and according to the free cash flow hypothesis,in order to improve the operating efficiency the enterprises shall refund the free cash flow to shareholders in the form of cash dividend. So the cash dividend policy is closely related to corporate free cash flow theoretically. However the existing of managerial entrenchment adds the relationship between dividend policy and free cash flow some uncertainty,and management’s defensive position is not the same in different ownership concentration. This paper selects Shanghai stock market listing Corporation from the year2010to2012as the research sample to study the role of managerial entrenchment in the relationship between the cash dividend policy and free cash flow under different ownership concentration respectively from the perspective of the free cash flow hypothesis and tunneling theory. The study found the following conclusions. Firstly, when the ownership is decentralized, managerial entrenchment would inhibit the cash dividend policy, and when the ownership is centralized, the influence of managerial entrenchment to cash dividend policy is insignificant. Secondly, the free cash flow does not significantly influence on whether distribute cash dividend or not in Chinese listing Corporation, but it does significantly influence the distribution level of cash dividend. Managerial entrenchment will impair the correlation between free cash flow and cash dividend policy. Thirdly, the high ownership concentration can ease the managerial entrenchment behaviors.