Mandatory Cash Dividend Policy And Its Economic Consequences

On our capital market, cash dividends of listed companies is generally low, lack ofcontinuity and stability. For guiding the healthy development of the securities marketand the purpose of protecting small investors, the regulatory authorities introduced aseries of policies to promote the listed companies paying mandatory dividend toestablish a good cash bonus mechanism since the end of2000.On October9,2008the Commission issued the "Decision on Amending SomeProvisions of cash dividends of listed companies". In this paper, we use event studyinvestigated the short-term market reaction to the mandatory dividend policy during thepromulgation. Meanwhile, we use the monthly transactions’ return of sample listedcompanies that carry out dividends continuously and pseudo companies which hadnever carried out dividends during2009till2011to calculate the Buy and HoldAbnormal Return. And then, we use the36months and three years of monthly returnsdata to do the ANOVA analysis and multivariate regression. Finally, in the robustnesstest, we use LOGISTIC regression analysis and establish multiple regression model totestify how the mandatory dividend policy affect the behaviors and the market value oflisted companies.Through a variety of empirical research and analysis methods, we draw aconclusion that mandatory cash dividend policy under securities regulation has asignificant impact on listed companies to carry out cash dividends, but the impact on thelevel of cash dividends is not so obviously. We think the reasons maybe lie in thespeculation of investors, the special ownership structure, so the performance ofshort-term market reaction is negative and the value between sample companies andpseudo companies is not clearly significant. Maybe the most important reason is that theunique institutional and economic environment of China.Thus, the regulatory objectives are not well realized. To built a healthy capitalmarket still needs long-term effort.