Does Dividend-Protective Stock Incentives Urge Frims to Increase Cash Dividends?
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| Title | Does Dividend-Protective Stock Incentives Urge Frims to Increase Cash Dividends?
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| Author | Hu Guoqiang，Zhang Junmin and Xiao Zezhong |
| Organization | Business School,Tianjin University of Finance and Economics; Business School,Cardiff University |
| Email | hgq2006888@163.com；zjm0451@yahoo.com.cn；jasonxiao@xtu.edu.cn |
| Key Words | Dividend-Protective Stock Incentives; Capital Investment Preference; Cash Dividend Policy |
| Abstract | In recent years, based on the signal theory of dividend payments, foreign scholars have provided empirical evidence for the the implementation of stock incentive scheme urges firms to increase cash dividend payout, however, they don’t provide explanation for the “iron cocks” phenomenon that prevailing in capital markets. This paper use the free cash flow theory to explain the low cash dividend payments behavior of listed Chinese companies that operate a dividend-protecive stock incentive schemes. We find that the implementation of stock incentive scheme doesn’t urge companies to significantly increase cash dividend payout, instead, the interaction term between it and capital expenditure shows a significant and negative effect on cash diviend payout. This suggests that managers subject to protective stock incentive schemes opportunistically increase capital investment and reduce cash dividend payout; Furthermore, the managers prefer intangible assets investment to long-term equity investment and fixed assets investment. Overall, we provide additional empirical evidence on the free cash flow hypothesis for the dividend payout and current cash dividend policy in China . |
| Serial Number | wp223 |
| Time | 2012-02-16 |
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