The Cash Dividend Policy And Earnings Management

Stock market is an important place to finance and allocate resource. As the capital provider, the broad masses of investors play a significant role in the stock market, which are the foundation and guarantee for the existence and development of the stock market. If the investors lack of internal motivation to invest, the stock market cannot be formed, let alone develop rapidly and smoothly. Investors take risks and share the benefits is a basic logic and simplest principle of the stock market, therefore the primary task about investor protection is to protect the investors’legal benefit. There are two ways to get benefit for the investors, one is capital gain, the other one is cash dividend. But the stock price is volatile, so it’s hard to get capital gain through buying and selling stocks. On this occasion, the value of cash dividend will be highlighted. The investors can get protection in a way if the list companies distribute part of the profit to investors. So put emphasis on cash dividend and take the distribution of cash dividend as an alternative way of investor protection has practical significance. Investors can obtain real benefit and the "firmly happiness" through cash dividend.China as a country now in the economic transition period, its capital market started later and the economic system is not perfect, so the domestic listed companies always pay attention to the financing but ignore cash dividend and even never share cash dividend. This phenomenon makes the investors’ wealth be "ransacked" unfairly for a long time. If the current situation of cash dividend cannot be improved all the time, the problems of Chinese stock market will not be solved.In fact, the emergence of the problems in the final analysis is due largely to the indifference to minority shareholders. But reform will not happen overnight, from the perspective of pragmatism we must reform the relevant system step by step based on our country’s situation. Due to the cash dividend has practical significance for the investors, so at the current stage the best way to protect investors’interests is to strengthen the cash dividend. From this point of view, issuing a series of cash dividend policies by CSRC in recent years has a good nature.But there are never lack of slogan about investor protection in our capital market, and the things that are for the purpose of investor protection at the beginning always lead to more serious damage to the investors in reality at last. So we cannot help asking that how the effect about the cash dividend policy? Actually, through analyzing the overall situation of the cash dividend payouts in recent years, we can find a notable phenomenon that is the number of companies which distribute cash expand gradually, but the ratio of cash dividend to net profit present a downward trend. This phenomenon can explain the fact to some extent that the domestic listed companies are reluctant to share out profit at present. Possibly to cater or achieve the requirement of the policy they make a cash dividend, not really want to return the investors. La Porta et al.(2000) indicated that "in general, firms in mandatory dividend countries have higher payouts than firms in countries without such rules, but they nevertheless appear, in the data, to have lower payouts than required by the law. A possible reason for this is that the accounting earnings reported to the authorities for the purposes of compliance with mandatory dividend rules are lower than the earnings reported to the shareholders which we use in our analysis". This means that the accounting earnings are manipulated by the management.Since2006, the CSRC has released mandatory dividend policy which made the public offering financing contacted with the cash dividends directly. In2008, the CSRC lift the proportion of the cash dividend further. The companies who want to finance by public offering are probably lack of money, so they will be less inclined to pay cash dividend. Whether they tend to adjust the profits by earnings management to cater the policies or not just like La Porta et al. indicated?In order to verify the above question, the article puts forward three hypotheses based on the theories of cash holding and earnings management, and then takes2006-2013year public offering companies in stock markets of Shanghai and Shenzhen. We investigate the public offering companies’ earnings management behavior before financing through multiple regression analysis and come to three conclusions. The first conclusion is that the public offering companies will carry out downward earnings management before refinancing. The second one is that the higher the threshold of cash dividend, the greater the tendency of downward earnings management before refinancing. The last one is that compared to the suspect firms whose cash dividend proportion concentrate on the low threshold, the suspect firms at high threshold are more inclined to make a downward earnings management, and always adopt real earnings management behavior to control earnings. For these reason, the paper argues that the aim to protect the investors’earnings of the mandatory dividend policy is not fully realized.The article mainly consists of six chapters, namely an introduction, institutional background and literature review, the theoretical foundation and research hypotheses, research design, empirical analysis, conclusions and policy recommendations.Chapter1, Introduction. This chapter describes the research background, significance of the article, research ideas, content, methods and expected innovation in order to introduce the article from the overall perspective.Chapter2, Institutional Background and Literature Review. This chapter firstly elaborates the development and evolution of our regulatory system to refinance, which laid the institutional foundation for the following research. Then review the literature. In the study of literature we divide it into:summary of dividend policy and earning management; refinancing behavior and cash dividend; refinancing and earning management; cash dividend and earning management. Finally, evaluate the literature. This chapter provides some good ideas for the research.Chapter3, Theoretical Analysis and Research Hypothesis. According to the purpose of the research, this chapter describes the cash holdings theory and the earning management motivation theory systematically. Then we put forward the research hypothesis using deductive methods. This chapter is the foundation of the article.Chapter4, Research Design. This chapter mainly describes the sample selection, data sources, data filtering, variable and model design.Chapter5, Empirical Analysis. This chapter firstly analyses the cash dividend situation before and after the refinancing of the public offering companies in order to intuitively understand whether they incline to cater the policy obviously or not. Then we investigate the public offering companies’earnings management behavior before financing through multiple regression analysis and find that the public offering companies will carry out downward earnings management before refinancing. Since the companies’ earnings management behavior will alter with the change of the policy, so we inspect how the change of threshold impact on the earning management and we find that the higher the threshold of cash dividend, the greater the tendency of downward earning management before refinancing. Finally, we compare the suspect firms whose cash dividend proportion concentrate on the low threshold with the samples at the high threshold and find that the suspect firms at high threshold are more inclined to make a downward earning management, and always adopt real earning management behavior to control earnings.Chapter6, Conclusions and Policy Recommendations. This chapter summarizes the conclusion of the research and makes some specifically recommendations based on the research findings. Moreover, we describe the limitations and point out the possible directions of the future research.Significance and innovation of this paper are mainly in:(1) Break through the existing study about refinancing corporate. This article is no longer confined to research the refinancing companies by general, but take the public offering companies as samples and research their earning management behavior before refinancing. the article provides a new perspective to study and has important theoretical significance.(2) Break through the existing study on the mandatory cash dividend policies released by CSRC. The current study about cash dividend in domestic are mostly concentrated on studying the effects of cash dividend on capital market or discussing the pros and cons of existing dividend policies from the practical point of view. Few scholars study the relation of cash dividend policy and earnings management of the public offering company using the method of empirical analysis. This paper enriches the relevant literature.(3) The article provides the theoretical and data support for evaluating the mandatory dividend policy and provides valuable policy recommendations for the further reform of our country’s cash dividend policies, so it has vital realistic significance.