Mandatory Dividend Policy，Financing Constraints and Investment Efficiency

Guo Lihong, Liu Ting

Journal of Shanghai University of Finance and Economics Vol. 21, Issue 01, pp. 95 - 106 (2019)  DOI:10.16538/j.cnki.jsufe.2019.01.007

Summary

In view of the phenomenon of " more financing and less return” in China’s capital market, the China Securities Regulatory Commission（CSRC）has promulgated a series of policies to guide or even force the listed companies to pay cash dividend. In 2013, CSRC stipulated all listed companies to pay cash dividend for the first time. The policy provisions have changed from Semi-mandatory Dividend Policy to Mandatory Dividend Policy since then. Compared with the Semi-mandatory Dividend Policy period, what is the impact of Mandatory Dividend Policy on resource allocation efficiency, especially investment efficiency? At the same time, the financing constraints of enterprises can affect their investment decisions. Then, under the impact of Mandatory Dividend Policy, how will the different levels of financing constraints affect the investment efficiency of enterprises? The existing literature often neglects the problem that the investment efficiency of enterprises with different financing constraints may be different under the restriction of Mandatory Dividend Policy. Therefore, this paper focuses on the comprehensive impact of Mandatory Dividend Policy and financing constraints on the efficiency of enterprise investment, which aims to examine the effectiveness of Mandatory Dividend Policy for companies with different firm characteristics. Based on the sample of Shanghai and Shenzhen A-share listed companies from 2011 to 2015, the results indicate that Mandatory Dividend Policy on the one hand increases the degree of under-investment, on the other hand reduces the degree of over-investment. Moreover, under the shock of the policy, the impact of financing constraints on enterprise investment efficiency is different. Mandatory Dividend Policy will weaken the negative impact of high financing constraints on under-investment of enterprises, while enterprises with low financing constraints can reduce the degree of overinvestment after being affected by the policy. Therefore, the supervisors should formulate targeted segmentation policies for companies with different financial situations, to improve the policy effect. Such policies can push enterprises to make rational use of resources, reduce the degree of over-investment and under-investment, and thus improve the efficiency of resource allocation. Enterprise managers should also pay attention to financial management. They should maintain appropriate liquidity to enhance the responsiveness of enterprises in the face of policy shocks, which eventually improve the efficiency of resource allocation and achieve the objectives of enterprises.

Keywords

Mandatory Dividend Policy; financing constraints; investment efficiency