Blog 4 - How to optimize the dividend distribution policy of listed companies

Dividend policy theory

To put it simply, the dividend policy is the decision of the company's managers to distribute or retain the company's earnings for investment. The theory of dividend policy includes traditional theory and modern theory.

The traditional theory is: "bird in the hand" theory, the company's retained earnings for reinvestment is very risky, so investors want to get instant cash dividends, not future earnings, and the company's stock price and dividend payout rate is positive Ratio; MM theory, the theory that a perfect capital market dividend policy has nothing to do with the market value of listed companies, that is, the dividend-independent theory; tax difference theory, in the absence of tax assumptions in the relaxation of M&M theory, the investor's taxation The high and low level affects the dividend policy of listed companies.

Modern theory includes: signal transmission theory, companies can pass the dividend policy to the market to attract more investors, in order to attract more investors; agency cost theory, the theory relaxes the MM theory about the interests of managers and owners Assume that the issuance of cash dividends will reduce the company's cash, thereby reducing the possibility of company managers wasting cash, reducing agency costs and increasing corporate value.

My Thoughts on the Dividend Distribution Policy of Chinese Listed Companies

Dividend policy lacks continuity and stability

The company's dividend policy is related to the stock price. When the company implements a stable dividend policy, the stock price will increase proportionally, and the enterprise value will also increase. Otherwise, it will cause stock price fluctuations and affect the company's future development. In order to maintain the stability of the stock price, listed companies in Western countries basically adopt a single fixed dividend policy, which will maintain the stable development of the company. However, in China, many listed companies implement a variety of dividend policies, and corporate stock prices fluctuate, affecting corporate value.

Ignore the interests of small and medium investors

In China, the equity of listed companies is too centralized, and most of the shares are in the hands of major shareholders. It is prone to a monopoly problem, which causes major shareholders to be dominant in corporate decision-making. On the other hand, listed companies often only consider The development needs of the company itself, paying attention to the ideas and interests of the major shareholders, ignoring the rights and interests of small and medium investors, so the minority shareholders are in a passive state.

The phenomenon of non-allocation and less allocation is serious

China's stock market has the characteristics of “paying attention to investment and ignoring returns”. When investors invest in the stock market, they can not only obtain the corresponding interest, but also get part of the dividend to compensate for the risk cost of the invested capital. However, there is no distribution in China's listed companies, and the phenomenon of less distribution still exists.

Lack of scientific dividend distribution basis

China's listed companies have the problem of insufficient dividends. Although the state has introduced a series of policies, many listed companies have begun to pay a small amount of dividends, but the overall phenomenon of insufficient dividends has not improved much. On the contrary, the phenomenon of excessive dividends mainly consists of abnormal distribution, re-investment and continuous distribution, and immediate dividends from the company at the beginning of the listing. These phenomena are behind the company's poor operating conditions, serious losses, and insufficient capital flows. Under the circumstances of excessive dividends, you can imagine the damage to the company's interests.