According to realised news from China’s
stock regulatory body (2012), companies who has not paid dividend for 5 years
will be forced to quit stock market. Because these companies have not given
investors a value return expectation.
Dividend decision is the major corporate
long term financial decision. And management can affect the shareholder wealth
through the dividend decision. But dividend decision is least analyzed in
financial decision making. As stated by Black(1976), dividend policy is the ‘Dividend
Puzzle’. The complications come from the relativeness to both the investment
and financing decisions. Therefore, it is difficult to investigate the dividend
policy in isolations.
There are two problems in dividend
decision. Does the pattern of dividend cash flow affect the shareholder value? If
it does, which particular patterns of dividend cash flow would maximize the
shareholder value.
The valuation model of equity depends on
the present value of expected future dividend cash flow. Therefore, dividend
decision is the determinant of equity value. But is it the pattern of the
dividend cash flow or the magnitude of the dividend that affects the value of
expected flow? This is needed to further investigate.
In fact it is still ambiguous whether
dividend policy can affect shareholders’ worth. Some empirical evidence tends
to suggest dividend decision is important, and the taxation on dividends should
be taken into account. Besides, given the imperfection of capital market dividend
decision should be with cautions. A company to maximize shareholder value may
keep a constant dividend cash flow which can allow investors to judge their desirability
and have clear investment goals.