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Semi-mandatory Dividend Policy and Investment Efficiency: Evidence from Listed Companies in China

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  • Bolin Liu

Abstract

Using the new regulatory policy in 2008 as a natural experiment, this paper examines the impact of Semi-mandatory Dividend Policy (hereinafter referred to as the policy) on investment efficiency. It shows that the policy significantly improves the investment efficiency of the experimental group. The improvement effect of the policy is realized by alleviating the agency problem and increasing the stock liquidity. Further study finds that the policy significantly reduces the investment-cash flow sensitivity and increases the cash-cash flow sensitivity of the experimental group. Affected by the policy, companies implement relatively conservative investment decisions and active liquidity management decisions. However, in companies with poor accounting information quality or strong refinancing demand, the effect of improvement on investment efficiency is weakened. Â JEL classification numbers: K22, G35, G38.

Suggested Citation

  • Bolin Liu, 2022. "Semi-mandatory Dividend Policy and Investment Efficiency: Evidence from Listed Companies in China," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 12(2), pages 1-4.
    • Handle: RePEc:spt:apfiba:v:12:y:2022:i:2:f:12_2_4
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    References listed on IDEAS

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    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    3. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    4. Martins, Theo Cotrim & Novaes, Walter, 2012. "Mandatory dividend rules: Do they make it harder for firms to invest?," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 953-967.
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    More about this item

    Keywords

    Semi-mandatory Dividend Policy; Investment Efficiency; Cash Flow.;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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