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Research about the Impact of Dividend Policy in Different Life Cycle on Enterprise Value

Author: GaoCongHui
Tutor: WuYanLong
School: Tianjin University of Finance and Economics
Course: Accounting
Keywords: Life Cycle Dividend Policy Enterprise Value
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 11
Quote: 0
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Abstract


The core issue of dividend policy is how to achieve a balance between income distribution and long-term growth in the future for maximizing the enterprise value in financial management. Since Miller-Modigliani’s dividend irrelevance theory, theorists have proposed many theories such as agency cost theory, signal transduction theory; dividends cater to explain the relation between dividend policy and corporate value. The dividend policy of China’s securities market is very complicated due to the special institutional environment and business market. Neither Signal transfer theory nor agency cost theory can explain the distribution of the dividend market today. In2006, the dividend life cycle theory was proposed by DeAngelo and Stulz, which provided a new way to explore the "dividend puzzle" by combing with the enterprise’s own cycle characteristics, operating environment, and shareholders from the point of view of bionics. Yet, whether the characteristics of the life cycle exist in China’s stock market dividends? And is the dividend policy of different cycles able to maximize enterprise value? Here, we will discuss these questions by the combination of theory and practice.On the theoretical side, we will explain China’s dividend policy through the analysis of the three-stage of listed companies:growth, maturity and recession. Although business risks external financing difficulties, there are more investment opportunities during the growth stage, which is because the companies choose to pay few dividends to balance the investment, avoiding development constraints. Due to the lack of maturity, the companies tend to reduce the investment spending and the ample working capital support higher dividends, which results in reduction of agency costs and enhance corporate value in the growth stage. However, during the recession, corporate dividend payments begin to decline because of the worsening in operation and financial condition.In order to verify whether there are significant differences in the dividend policy and the relation of different cycles of dividends and corporate value, we select A-share in Shanghai and Shenzhen for four years2008-2011as an empirical test of the sample. First, the sample was divided into three stages:growth, maturity, and decline in the life cycle by using cash flow indicator approach. Secondly, corporate cash dividend policy was measured in terms of the intention from the dividend payment, the dividend payout ratio and the dividend per share. And the differences in different cycles were studied by using Logit regression and multivariate linear regression, which suggested that the tend for dividend policy in maturity was stronger than that in recession besides for no significant difference during growth and maturity, and also, the payout ratio and dividend per share were higher in maturity than that in growth and recession, the corporate dividend policy was adjusted in accordance with the different life cycle by China’s listed companies. Thirdly, multiple linear regression were used to test the dividend payout intention, dividend payout ratio and dividend per share value for the enterprise in different cycle, which showed that there was no significant correlation between dividends and enterprise value of China’s listed companies in different cycle.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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