An Analysis Of The Influence Of Cash Dividends And Free Cash Flow On Cost Sticky Of A-Share Manufacturing Companies

When the rate of cost growth with the revenue increase is greater than the rate of cost decline with the revenue reduce, the cost stickness phenomena come into being. Research on cost stickness has been widely concerned by academia since its inception. The existence of cost stickiness, reasons of its formation, and its influence factors have been put in-depth discussion and analysis by most scholars. At present, among the study on the causes of stickiness in costs, opportunism becomes the mainstream concept. As long as opportunism to say, in order to achieve the realization of personal remuneration, status, prestige and other purposes, managers prefer to manipulate expenses deliberately. Under the stimulus of the self-interest motivate, managers secretly transfer the personal consumption into the whole expenses of company when the revenue rising, causing abnormal expansion of cost, and when revenues decline, in order to retain the control high-quality resources, they deliberately delay the reduction of redundancy costs and slow down the descent speed of expenses, thus resulting in the cost stickness. So what factors induce manager’s self-interest behavior? Whether these factors affect the cost sickness? Is there any effective measures that can inhibit cost stickness caused by manager’s self-interest behavior? Answers to these questions are undoubtedly important for the enterprise cost management.From the perspective of "free cash flow hypothesis", this paper firstly discusses the mechanism that free cash flow induces the self-interested behavior of manager and increase the level of cost stickness, then it analyzes the theoretical foundation of cash dividend inhibiting cost stickness through decreasing the free cash flow that manager can dominate, and finally on the base of theoretical analysis, this paper take empirical study on the following questions with the sample of 2007-2014 A-share listed companies in the manufacturing sector: first, does the cost stickness exist in Chinese manufacturing companies? Second, Does the ample free cash flow intensify the level of cost stickness? Third, can issuing cash dividend inhibit cost stickness when there are sufficient free cash flow?The results show that the cost stickness does exsit in Chinese manufacturing firms. Ample free cash flow leads to the costs stickness promotion and under conditions of sufficient free cash flow, cash dividends play a strong inhibition effect on the level of cost stickness. Accordingly, this paper suggest that companies should strengthen the managers’ awareness of reasonablly cost control, and enrich responsibility assessment content of manager, which can alleviate the agency problem between management and shareholders, improve enterprise cost management system, and increase the overall level of performance.