Study on The Influence Factor of Cash Dividend Distribution in Listed

Transcription

1 Study on The Influence Factor of Cash Dividend Distribution in Listed Companies 1 Wu He, 2 Ping Liu 1, Management Department Ningbo Institute of Technology Zhejiang University Ningbo, China, hewucpa@163.com *2, Economic and Trade Department Ningbo Institute of Technology Zhejiang University Ningbo, China, Liuping8789@126.com Abstract The cash dividend policy is actually ratio of segmentation problem between enterprise profits dividend and retained earnings. This paper is taken empirical analysis based on relevant data of A- share listed companies on main board in Shenzhen Stock Exchange in 2010 after reference foreign and domestic literature, make an analysis on the influence factors of cash dividend policy. The results are: cash dividend of listed companies would be influenced by dividend scale, capital structure, dividend structure and its growth capability and so on. Therefore, the authors have put forward political suggestions to serve for the inspection department of stock market. 1. Introduction Keywords: Cash Dividend, Affecting Factors, Empirical Study, Listed Company Cash dividend is the major form of dividend distribution, a crucial means to compensate the interest of shareholders. Appropriate policy of cash dividend distribution can not only set up good company reputation, but also arouse long-standing enthusiasm of many investors. So companies can acquire favorable and stable development conditions and more opportunities. 2. Literature review 2.1. Foreign research Foreign scholars started early from the 1950s, but their research conclusions are difference as different study Angle and the method[1]. Lintner (1956)made empirical research to target cash dividend payment rate in the first[2] [3], he thought dividend variation depend on previous dividend and the current profit; Fama(1968)[4]and Graham(1985) discovered the cash dividend and investment policy were independent respectively[3]; Jesen (1974) prove that the shareholders can tolerate lower cash dividend payment rate if more the growth opportunity[5], that is negative correlation between cash flow and growth opportunities; Jensen and Johnson(1995)discover profit is descend before cash dividend distribution, but it increased after announcement Domestic research In China, the study start late to the theory and empirical analysis of cash dividend policy, and refer to the model and the method on abroad mostly. Lin hai (2000) made correlation analysis method choosing the sample of 339 companies Shenzhen exchanges in 1997[6], there were obvious positive correlation between cash dividend payments and profit and the tendency is stock dividend instead of cash dividend in some listed company income higher[7]; Tang Jian Xin (2002) indicated that there were some influence factors such as monetary funds, market value and undistributed profit, earnings per share, net assets per share to asset ratio[8]; Xiao Mian (2005) showed cash dividend distribution was relevant to majority shareholder attempt to Advances in information Sciences and Service Sciences(AISS) Volume5, Number4, Feb 2013 doi: /AISS.vol5.issue

2 extract funds; Liu Chang Kui (2007) showed the main factors influence cash dividend distribution was profitability and net assets value. 3. Status quo of cash dividend distribution of China's listed companies It is different to various listed companies in China about cash dividend policy, but also it showed some common features and the same tendency Companies of cash dividends are less There are only 16.19% listed company to distribute cash dividend in 1993, and then increased after years. In 2001, the proportion reached 49.38% that is the highest from now on. On the whole, there are 36.09% of listed companies only to pay cash dividends. And some companies take other forms of distribution such as stock dividends and so on.all together, there are only 47.22% companies of the cash dividend distribution also. Table 1. Cash dividends over the years in listed companies Years Numbers of only cash dividend percentage(%) Numbers of containing cash dividend percentage(%) Numbers of listed company Cash dividend distribution present seven stages From 1993 to 1994, companies increased that cash dividend distribute; 1995 to 1996, the companies distribution cash dividend fell sharply; From 1997 to 2001, it increased year after year; But from2002 to 2003, the numbers reduced year by year; In 2004, increased, then cut down in 2005 to 2006; By 2007, the distribution of cash dividend company made the increase of sharply, minor reductions followed to now. 320

3 Percentage Numbers of only cash dividend Numbers of containing cash dividend Figure 1. Stages of Cash dividend distribution 3.3. Cash dividend payout ratio decrease progressively, Dividend yields is always very low In recent years, cash dividend payment rate are at a high level in the listed companies of China, but because company profitability is low, it lead to the absolute value of earnings per share is also lower, so during the latest ten years, its dividend yields can only maintain at 1%, and if we considerate into the company no allocate, overall dividends rates are lower. The index also greatly lower than 5% which is The Federal Reserve System announced the general level. So returns of investors are insignificant in the cash dividend rate. Table 2. Cash dividend payout ratio Year % Table 3. Dividend yields Year (%) Empirical analysis 4.1. The research hypotheses Hypothesis 1, profitability is stronger and cash dividend is higher. Because it is essential that profit be exist and develop to company. The profitability is stronger, the distribution of profits more, the possibility of cash dividend distribution maybe more also[9]. Hypothesis 2, the more cash flow be enough, the stronger ability to distribution cash, the higher the cash dividends per share. According to Agency Theory, the company has the greater cash flow, the agency cost is higher, then, shareholders will tend to the cash dividend and reduce cash flow[10]. Hypothesis 3, asset-liability ratio is higher, the cash dividend is lower. 321

4 The debt burden of company is heavier, the pressure of the debts expires is greater. The companies would preserve retained earnings to improve the financial position rather than distribute of profits in general, to avoid further deterioration of the financial structure. In addition, the creditors usually set some restrictive provisions such as require the company not be distributed if continued to worsen. Hypothesis 4, the greater of the size of the listed company, the higher of probability cash dividend The smaller companies is often the stronger to expand, it will be less pay cash dividend and more retained earnings or stock dividend in order to project of higher returns. But the larger company, the economic benefit is relatively better, depend on the strength and reputation,it is more likely to obtain funds from other sources of lower cost, this company also often want to distribute the cash dividend to transfer good signal to the market. Hypothesis 5, the higher cash dividend previous year, the higher current For a particular company, there are continuity dividend policy and payment model Variable selection Dependent variable is Cash dividend per share (DPS).Independent variable are Return on equity(roe);asset-liability ratio(alr);operating activities generated cash flow per share(ocf); Total equity logarithm(tel); Cash dividend per share previous year((dps1) Samples selection We take samples from the Shenzhen stock exchange in A shares of listed companies on the main board, and selecting data from listed company annual report in The initial data are through Shenzhen stock exchange the official website. In order to ensure the effectiveness and objectiveness, we eliminate the abnormal of samples in the study. l Eliminating companies Initial Public Offerings in 2010; l Both cash dividend and accumulation fund turns add capital stock; l Cash dividends also stock dividend of the company; l Company without any dividend distribution form ; l Special Treatment and data defect of the listed companies. Finally, we select 161 net distribute cash dividends listed companies as samples in the Main Board of the Shenzhen Stock Exchange A-share in Correlation analysis and model design There are highly related between earnings per share (EPS) and return on assets (ROE). Therefore we select return on assets as indicators of the company profitability. Five variables are selected and established a multiple regression model which are ROE, ALR, OCF, TEL. Table 4. Coefficient matrix of independent variable Coefficient EPS ROE ALR OCF TEL DPS1 EPS 1 ROE ALR OCF TEL DPS According to the above analysis, the model is as follows: DPS=β 0 + β 1 ROE+ β 2 ALR+β 3 OCF+ β 4 TEL + β 5 DPS1 322

5 公 司 数 4.5. The statistic analysis Descriptive statistical analysis: The data of the descriptive statistics are such as follows. First, companies of high DPS are only fewer. Maximum of cash dividend (DPS) is 1.67, the minimum is 0.01, the average is 0.13, in order to further analysis, we order sample companies according to cash dividends and divided into 17 groups, range is There are 89.4% Companies which DPS are between 0.01 and 0.21 yuan, namely Companies of high DPS are Only Fewer. 现 金 股 利 分 类 统 计 图 Figure 2. The cash dividend statistic 每 股 现 金 股 利 Second, the companies that distribute cash dividends are profitable companies. We chose the dividend payment rate in order to reflect the policy of dividend distribution and the ability to pay dividends, and it measure with DPS/EPS and DPS/OCF. Table 5. Statistics of dividend payment rate Percentage Company numbers DPS/EPS % %-40% %-60% %-80% %-100% 4 2 >100% 9 7 Total DPS/OCF In the view of profitability (DPS/EPS), cash dividend distribution can't more than paper profits in sample the company generally. in the view of operating cash flow (DPS/OCF), cash dividend distribution are no more than its operating cash flow in most companies Regression model analysis: The model is proved to be representative, and does not exist firstorder serial correlation between the variables. There is linear relationship between the dependent variable and independent variables, that regression model is significant. R R Square Adjusted R Square We can conclude as follows from Table 7. Table 6. Model Summary Std. Error of the Estimate R Square Change Change Statistics F Change df1 df2 Sig. F Change Durbin- Watson

6 Model Table 7. Coefficients Unstandardized Collinearity Standardized Coefficients Coefficients t Sig. Statistics β Std. Error Beta Tolerance VIF Constant ROE ALR OCF TEL DPS The first, better profitability, the more pay cash dividends. The coefficient of ROE is 0.008, it means cash dividend will increase when ROE increase a unit. There is positive correlation between ROE and cash dividend. The second, there are negative correlation between asset-liability ratio and cash dividend. The coefficient explain asset-liability ratio increase a unit, cash dividend will be reduced to under the condition of invariable in other variables. This shows will fully consider its own solvency in making the cash dividend policy.if debt paying ability is weak, the companies are faced intense pressure of reimbursement, contract constraint of the creditors of is stronger, also will get retained earnings to improve the financial position of the company more likely. The third, there is positive correlation between cash flow and cash dividend. Coefficient of Cash Flow from operations Per Share is The cash dividend depends on the company's cash flow. If have no enough cash flow to support, the cash dividend is no credibility. And from the above descriptive statistics, OCF is positive account for 78.3% in sample to companies, therefore cash flow from Operations effect on cash dividend distribution. No a certain correlation between the size, growth and cash dividend. The coefficient of total equity logarithm is , it is contrary to expect. In hypothesis 4, the larger the company scale is, the higher the cash dividends per share. The reasons may be as follows, large companies belong to state-owned listed companies, majority shareholders are generally state-owned shares or legal person share, decision-making power of cash dividend distribution are mastered in the hands of the parent company, but the logarithm of total equity can't reflect the status of the parent company truthfully. In this paper, we choose the samples without additional share, allotment of shares both cash dividend and allotment of shares. Also, the sample data from the main board market of Shenzhen exchanges only A share, data is not enough, they may also have influence on the analysis. The forth, continuity of dividend policy is not enough. Coefficient of cash dividend is previous year, which reflected the more cash dividend last year, the more cash dividend tend to be distributed current year also. This shows stable dividend policy is beneficial to keep good image for the listed company, and to signal performance and confidence in the future to the market, so as to improve reputation of company. Table 7 is accord with linear regression requirements from the regression model of residual statistics. There is no multicollinearity combined with the table 4. Table 8 Residuals Statistics Minimum Maximum Mean Std. Deviation Predicted Value Residual Std. Predicted Value Std. Residual

7 Dimension Eigenvalue Table 9 Collinearity Diagnosis Condition Index Variance Proportions Constant ROE ALR OCF TEL DPS The empirical results First of all, there is lower cash dividends per share in the listed company, there are 88.2% of the sample company which cash dividend distribution are concentrated in If after deducting the income tax, shareholders get the less actual cash dividend. Secondly, distributing cash dividend companies are profit, there are 78.3% of the listed companies that operation cash flow (OCF) are positive in distributing cash dividend. So in the view of cash flow, policy makers more depend on operating cash flow when he decide to distribute cash dividend. Thirdly, from dividend payment, most companies listed are no more than the accounting profits and operating cash flow on cash dividend distribution. And through the empirical test, hypotheses are verified. When profitability is stronger, cash dividend is higher; Cash flow is enough, cash dividend is higher; The higher the asset-liability ratio, cash dividend is lower; cash dividend payment level higher Last years, the current cash dividend payment are higher also. 5. Recommendation The cash dividend policy is actually ratio of segmentation problem between enterprise profits dividend and retained earnings. It is conducive to financial operation presently to improve the retained earnings ratio, it can reduce the external financing and the financing costs. But, it means reducing dividend payment rate, reducing the shareholders of current income, thus affecting the company image and investor confidence, and more, increasing the financing cost and financing difficulty in the future. Therefore, the basic task of the cash dividend policy is balance three major contradictions between enterprise and shareholder their current interests and future interests, balance their the short-term interests and long-term interests, distribution and growth of the, effectively enhance the company's development in the future, promote the company's long-term stability and development. 6. References [1] G. Eason, B. Noble, and I. N. Sneddon, On certain integrals of Lipschitz-Hankel type involving products of Bessel functions, Phil. Trans. Roy. Soc. London, vol. A247, pp , April [2] J. Clerk Maxwell, A Treatise on Electricity and Magnetism, 3rd., vol.2.oxford: Clarendon, pp.68 73, [3] S. Jacobs and C. P. Bean, Fine particles, thin films and exchange anisotropy, in Magnetism, vol. III, G. T. Rado and H. Suhl, Eds. New York: Academic, pp , [4] Baker, H.K.Gail E. Farrely and Richard B. Edelman, A Survey of Management View on Policy, Financial Managerment, Autumn, [5] Bhide, Amar, The Hidden Cost of Stock Market Liquidity.Journal of Financial Economics, August [6] Lu,C.J., Xu,J.J., Dividend Signaling Effect: From the View of Dividend Change Announcement, Nankai Business Review 13, pp.90 96,

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