Does having a semimandatory dividend policy enhance investor confidence? Research on dividend-financing behavior

Wenyun Yao, Lei Zhang and Jianxiong Hu

Economic Systems, 2020, vol. 44, issue 4

Abstract: Enhancing investor confidence is crucial for sustainable and stable development of the capital market. Does having a semimandatory policy to pay dividends help to enhance investor confidence? What is the origin of the cash dividend paid by companies to meet regulatory requirements so as to enhance investor confidence? Based on these considerations, this paper uses the exogenous policy shock that in 2006 the China Securities Regulatory Commission required listed companies to pay accumulated dividends of no less than 20 % of average annual distributable profits and adopts a panel difference-in-difference estimation strategy to explore whether this new policy has significantly enhanced investor confidence. In addition, it explores the source of external financing for cash dividends by examining dividend-financing behavior. The results show that the semimandatory dividend policy has led to new dividend-financing behavior by listed companies. The cash dividend paid by companies comes mainly from external financing, especially a net increase in debt. The paper expands the traditional theory of dividend payment and provides a reference point for decision-making by shareholders, company managers, and regulatory agencies.

Keywords: Active funding gap; Cash dividend payment; Difference-in-difference model; Dividend financing; Investor confidence; Semimandatory dividend policy (search for similar items in EconPapers)
JEL-codes: G34 G35 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:4:s0939362518304461

DOI: 10.1016/j.ecosys.2020.100812

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