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Comment on the dividend policy in the West

Author: Anonymous From: www.yourpaper.net Posted: 2009-11-03 02:15:22 Read:
Abstract: West more representative dividend policy and model, and for a brief commentary; pointed out that in view of China's capital market environment, China's securities market in the immature stage the unique split share the phenomenon, given the rich connotation of the dividend policy , how to learn from foreign research results, combined with the current shareholding structure of China to become the focus of our study dividend distribution.
Keywords: Western dividend policy; ownership structure; Policy Research


The dividend policy is the basic attitude and principles and policies of the company to achieve certain goals in the balance of the enterprise on the basis of external interests, net profit how to allocate taken. Black (1976) dividend policy as a "dividend puzzle" Bresley and Myers (1991), the company's dividend policy as one of the top ten problems of the company's financial
1956 John Lintner dividend theoretical model, opened the prelude of dividends research theory summed up as "fact".
(1) The company has a long-term target dividend payout ratio, mature company's dividend payout is higher than growth. (2) within a specific period of time, the management is more concerned about the dividend change rather than the absolute level. (3) the dividends change with the company's long-term sustainable growth in earnings related to the level, company managers tend to iron out the wrinkles dividends, temporary earnings change is unlikely to affect the dividend level. (4) The manager of the company do not want to make possible to overthrow the existing dividend policy initiatives, especially dividend increase.
Bake, Kent, Farrell, Edelman (1955) study the payout of the New York Stock Exchange listed companies in 1983 and 1997 and Bake and Kent, Powell, Gary (2000), respectively, and pointed out that: the past dividend species, the dividend policy of continuous The nature and the current and expected profitability is the determining factor for the company to pay dividends. The Baker, veit, powell (2001) confirmed Lintner theory.
Traditional dividend policy theory
(1) "a bird in the hand" theory (Bind in Hand, Gordon, 1959). The theory is that the stock price fluctuations; investors are generally risk averse, preference dividends rather than capital gains. When companies to increase the dividend payout ratio will reduce the risk of investors, thereby reducing the required rate of return for investors, share prices have risen; contrary fell. Dividend policy is closely related to the value of the business to pay the higher dividend, the greater the value of the company; vice versa counter. Representatives (Williams, 1938), (Walter, 1956) and (Gordon, 1959) and other. Gordon's stock value model in 1962 to the peak theoretical development.
(2) MM dividend irrelevance theory. Miller and Modigliani 1961 proposed the theory in the dividend policy, growth and stock price. In perfect capital markets, rational behavior, and fully affirmed the dividend policy will not have any impact on the value of the business or stock price so strict assumptions.

MM theory successful use of mathematical models to reveal the relationship between the value of the dividend policy and stock, creating a new chapter in the dividend policy studies, is a modern dividend policy research background and clues. But divorced from the reality of its preconditions and conclusions, dividend policy does not matter priorities, regardless of the enterprise value, only a financing strategies. In reality, Why do companies pay dividends? Shareholders why the emphasis on dividend policy?
(3) narrowly tax differential theory. The Elton and Cruber (1970) relax the assumption of "the MM theory" in taxes and transaction costs, tax differences theory Farrar and Selwyn (1967) compare different shareholders cash dividends after tax income and after-tax capital gains, that the after-tax capital gains will greater than the after-tax dividend income; Therefore, the shareholders prefer capital gains, does not support the dividends payable can increase shareholder wealth. Brennan Farrar and Selwyn stock valuation model similar conclusion: stocks with high dividend amount higher pre-tax income than stocks with lower dividend amount, the company's dividend policy is not to pay dividends. The theory emphasizes the investors due to tax avoidance and preference stock dividends, but for universal cash dividend Western, which is obviously not convincing.
(4) generalized theory of tax effect (followers effects). The theory starting from the shareholder's marginal income tax rate, the different that each investor tax level, which they have a different attitude on dividend policy; Accordingly, the company will adjust its dividend policy corresponding to the dividend policy in line with the wishes of the shareholders. Equilibrium is reached, the stocks of high dividend payout ratio will attract a class of followers (low marginal tax rates level investors); stock of low dividend payout ratio will attract another type of followers, so called "followers effects. In 1961, Miller and Modigliani followers effects. Black and scholes (1974), two scholars investors grouped into groups of three types of followers that dividend preference dividend-averse, type of dividends neutral. Followers Empirical research literature is very rich. Usually use empirical research method:
(5) The ex-dividend day stock price behavior test method (ex-dividendd tcst). Elton and Gruber (1970) that the shareholders faced with two options in the enterprise before the ex-dividend or ex dividend date sold stock, and the loss of the right to dividends; ex-dividend or held-to-future to get the dividend, but the stock price due to The ex-dividend and lowered. If there is no arbitrage, no matter what kind of choose, the resulting revenue should be equal.
(6) CAPM method. The method to use the CAPM model to study the relationship between dividend yield and stock returns. Increase the standard CAPM model based on - dividends the variable, to reflect the impact of dividend changes on stock returns; then conducted a cross-sectional regression analysis of the dividend variable coefficients to determine the relationship between the dividend tax. The increased dividend variable, amendment CAPMM model becomes:

Another scholar from tax law modifications angle, but the tax law whether the changes lead to changes in dividend policy has not reached the same conclusion.
The modern theory of dividend policy
The modern theory of dividend policy around the dividend policy can affect the value of the company to expand, mainly including signal transmission theory, agency costs theory, behavioral theory - dividends cater to the theory.
(1) signal theory. Dividends have information content Idea Lintner, first proposed by MM. Fama, Fisher, Jensen and Roll, 1969 in "International Economic Review," co-authored "The adjustment of stock prices to new information," set off the wave. The theory is that the information asymmetry between the management authorities and enterprises outside investors, management authorities occupy more about enterprise private information of future cash flows, investment opportunities and earnings prospects. The dividend is a means of internal information management authorities passed to the outside world to master if they are expected to be good to the company's development prospects, future performance and growth through increased dividends this information in a timely manner to tell shareholders and potential investors ; otherwise anti dividend policy is able to pass the information of the company's future profitability, have a certain impact on the stock price: When the dividend payment, stock prices rise; otherwise anti. Bhattacharya (1979) created the first dividend signal model marks the dividend policy has entered a new stage. Other scholars have also established a series of dividend information signal model, like Miller - Roque model for (Mi11er and Rock, 1985), John - Williams model (John and Williams, 1955) and so on. An Empirical Study of the dividend signaling theory from four aspects:
A. dividend policy does contain information content; B. Dividends declared passed the information is true and valid; C. dividends in the end what kind of information is passed to the market; the D. Company management authorities whether there is awareness of the use of dividends to transmit information to the market.
Cash dividend policy as an information delivery mechanism, the function to Dividend authenticity of the information. Dividend signaling theory there is the following obvious question: A. signal means of information transmission theory to explain and predict difficult for different industries, different countries of the dividend policy difference; B. in the market, the effectiveness of enhanced greatly enriched today, why not use quite effective but less costly means of signaling? C. in the rapid growth of the industry, the enterprise, the dividend payout ratio is generally low, such as Microsoft, the performance of these enterprises are there for all to see, the opposite interpretation is made according to the signal theory.
(2) agency theory. Jensen and Meckling the first to propose the theory. His two enterprise as a contract binding point, and to distinguish between the two types of conflict of interest: first, the conflict between shareholders and managers; conflict between shareholders and creditors. That dividend policy and between managers and shareholders' interests conflict. Rozeff believe that the payment of dividends on the one hand to reduce agency costs, but on the other hand, due to the payment of dividends causes external financing needs increase, which will increase the transaction costs. Therefore, the company's dividend payment there is a trade-off between these two cost optimal dividend policy is both cost minimization. Eastethrook (1984) that the dividend policy can be used as a tool to reduce agency costs through dividends to change the capital structure, improve liabilities - equity ratio to increase the supervision of the creditors of the enterprise, thereby reducing the oversight of the expenditures of the principal (shareholders) to increase shareholder value . Dividend indirectly evaluated the management of investment activities, which may make a useful contribution to the value of the enterprise. Gloria (Kalay, 1982) focuses on the principal - agent relationship between shareholders and creditors on the dividend policy, he believes that enterprises should be seen as an interest conflicting and competitive cooperative groups, of which the two most important groups, shareholders and creditors. The dividend distribution agent theory is the mainstream view of modern dividends theoretical research.
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