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Dividend policy theory and practice of listed companies

Author: ChenChunYan YangJun From: www.yourpaper.net Posted: 2009-11-30 00:12:30 Read:
Abstract: The possibility of establishing a reasonable dividend policy, a direct impact on the long-term development of the listed companies, the paper outlines the basic theory of dividend policy, types, and then analyzes the existing problems of the dividend policy of listed companies in China, and then elaborated to solve the dividends of listed companies in China allocation of countermeasures proposed that the company should determine the appropriate dividend policy point of view according to their stage of development.
Keywords: theory of dividend policy dividend policy types listed company dividend policy
0 Introduction
The dividend policy is a trade-off between the reinvestment of profits and return investors as an important part of the company's financial management, and over the years has been academia research hotspot "dividend irrelevance theory", "in hand bird ', the Income Tax difference theory" has caused a wide-ranging discussion. This article intends to focus on the dividend policy in listed companies in China's use of the characteristics of China's listed companies and the problems of its dividend policy, in order to pass the study of the Western theory of dividend policy on the dividend policy of listed companies in China have inspiration.
Dividend policy theory
In Western countries, the dividend policy has been the object of study of the financial management expert, and has a more mature theory. Study the basic theory of the representative on the dividend policy: dividend irrelevance theory, a bird in the hand on the income tax difference theory.
1.1 dividend irrelevance On this view by Miller and Modigliani two scholars proposed that, under ideal conditions, dividend policy has nothing to do with the enterprise value, do not be shareholders of impact.
This theory is built on a series of assumptions: (1) there is no personal or corporate income tax; (2) there is no stock issuance and trading costs (that is, there is no stock financing costs); The company's investment decisions and dividend decisions independent of each other (ie investment decisions from the impact of dividend); market is a complete market, and information symmetry.
The core of the theory of perfect capital markets, dividend policy and corporate value regardless of the value of effective asset investment come.
1.2 "bird in hand" theory of the theory of representative M Gordon D Durand. The main point is: the expected return of shareholders equity investments consists of two parts, the dividend income and capital gains income. Since most investors are risk averse, they naturally prefer higher cash dividend payout ratio policy. Lintner, and Gorden believe high dividend can reduce the uncertainty of investors for investment. Forward to send high dividends more recently for dividends with high uncertainty. Shareholders of the recent stock dividend less given to the evaluation of the lower prices. In the eyes of investors, through the reinvestment of retained earnings from capital gains, higher than the dividends paid by the uncertainty of uncertainty, so when the company reduce its dividend payout ratio, the required rate of return required by investors ( Ks) will rise to uncertainty as investors bear the additional increase compensation. The shareholders want to get back as quickly as the money invested by the dividend.
The core of the theory is that the enterprise necessary to develop a high payment ratio of dividend policy, in order to maximize enterprise value.
1.3 Income tax differences On the theory of representative Robert Litzenberger & Krishna Ramaswarmy, they think: If the capital gains tax The difference between the dividend income tax, dividend income tax is greater than the capital gains tax, investors will prefer the companies less fat dividends. In corporate investment project has a net present value is greater than 0, priority should be given to investment rather than pay dividends. When companies have excess cash, the ratio of the rate of personal income tax and corporate income tax rate is an important factor in the dividend policy. In addition, investors can also defer capital gains and delay paying capital gains income tax.
The core of the theory is that enterprises required to develop low pay proportion of dividend policy, in order to maximize enterprise value.
In addition to these three basic dividend policy theory, dividend policy theory, agency theory and signal theory.
Agency theory proposed by Jensen and Meckling in 1976, the theory that the modern enterprise in a high degree of separation of ownership and management rights, dividend payments can reduce managers high agency costs caused by the conflict of interest between the shareholders, can be used as a strategy to maximize the value of the company.
Signal theory is that there is information asymmetry between company managers and investors. Dividend policy as a signal from within the company managers passed to the external investors.
The basic types of dividend policy
In the course of practice, the common dividend policy following:
2.1 residual dividend policy residual dividend policy theory is based on the MM theory of dividend irrelevance theory. It requires that the target capital structure (capital structure), a measurement of equity capital investment required, starting with a surplus which retained, then the remaining surplus as a dividend to be allocated.
Advantages: best meet the needs of the enterprise's equity capital reinvestment, to maintain an optimal capital structure, the integrated enterprise the lowest cost of capital to achieve long-term enterprise value maximization.
Disadvantages: full compliance with the residual dividend policy, dividend payout amount will fluctuate annually with fluctuations in the level of investment opportunities and profitability; ignore the different shareholders on capital gains and The dividend preference damage the interests of the shareholders prefer cash dividends, which may affect the confidence of the shareholders of the enterprise.
Scope: General for company start-up stage.
2.2 Fixed or continued growth in the dividend policy adopted the theoretical basis of the policy is a "bird in hand" theory and signal theory. It requires that the payments fixed or to pay dividends in the form of a stable growth rate in dividends per share. Only enterprise management authorities think that the profitability of the enterprise has indeed increased future earnings enough to pay more dividends, an enterprise to improve the per share dividend payment.
Advantages: stable dividend policy to eliminate the uncertainty in the minds of investors.
Disadvantages: Payment of dividends and earnings out of line, and still have to pay a fixed dividend when earnings lower, this may appear a shortage of funds, the deterioration of the financial condition, affecting business long-term development.
Scope: This dividend policy applies to earnings stability in growth companies.
The 2.3 fixed dividend payout ratio policy of the theoretical basis of the policy is the "bird in hand theory. It requires companies to annually according to a fixed proportion of the distribution of dividends to shareholders from net profit.
Advantages: dividends and corporate earnings closely integrated, reflecting the multi-Ying multisection less profit less points, regardless of the principle of no gain, truly fair treatment of each a shareholder.
Disadvantages: in practical work, the fixed rate of dividend payment policy inadequacies performance: (1) the company's financial pressure. Policy, corporate profits more under the fixed dividend payout ratio, dividends also should be more. The company achieved profits of more than only company profitability, and not necessarily good to show that the company's financial position. Under this policy, with cash distribution of a dividend is rigid, which inevitably brings considerable financial pressure. (2) the lack of financial flexibility. The dividend payout ratio is the main content of the company's dividend policy, the dividend distribution mode selection, dividend policy, the formulation of the company's financial means and methods. At different stages of the development of the company, the company shall, in accordance with their own financial position to develop different dividend policy, which is more conducive to the realization of the company's financial goals. Fixed dividend payout ratio policy, the company lost its a financial dividend policy, the lack of financial flexibility. determine a reasonable fixed dividend payout ratio is very difficult. If a company dividend payout ratio to determine low, can not meet the requirements of investors of real dividends; Conversely, a high dividend payout ratio to determine, and it will make a lot of money outflow due to the payment of dividends, the company will be due to lack of funds and constraints its development. Visible, the company more excellent dividend payout ratio is a work of considerable difficulty.
Scope: stable development of the company and the company's financial situation is more stable phase.
The theoretical basis of the policy of the 2.4 normal low shares american additional dividend policy is "in hand bird" theory and dividends signal theory. Ranged from a fixed dividend and fixed dividend payout ratio dividend policy, corporate general every year to pay a lower fixed dividend when earnings growth is higher, and then add additional dividends paid according to the actual situation.
Advantages: not only ensure the stability of the dividend, shareholders rely on dividends to get by a relatively stable income, dividends and earnings can do better with enterprises greater flexibility.
Disadvantages: dividend distribution is still a lack of stability; if the company's long period of time has been granted additional dividends, the shareholders will mistakenly believe that this is a normal dividend, once canceled, can easily caused by the reversal of the negative impact of companies' financial condition, leading shares fell.
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