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Are the Semi-mandatory Dividend Rules Effective?
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TitleAre the Semi-mandatory Dividend Rules Effective?  
AuthorWei Zhihua, Li Maoliang and Li Changqing  
OrganizationXiamen University;; 
Key WordsSemi-mandatory Dividends Rules; Dividend Policy; Implementation Effects; Regulatory Paradox 
AbstractIn 2001, 2004, 2006 and 2008, the China Securities Regulatory Commission stipulated a series of so called Semi-mandatory Dividend Rules, which require dividend payment as a precondition for seasoned equity offering. Using a sample of 1925 nonfinancial firms from Chinese A-share market during the period of 1990-2011, this paper provides the first comprehensive empirical research on the effects of the Semi-mandatory Dividend Rules. We show that the Rules have significantly influenced the dividend behavior of Chinese listed firms. Specifically, we find that (1) the Rules in general and their various stages significantly enhanced the propensity and magnitude of dividend payments of Chinese listed firms, although the 2006 and 2008 Rules which specified the “threshold dividend” seem to have weaker effects on dividend payments than the 2001 and 2004 guiding Rules. (2) The Rules have promoted firms in non-competitive industries and with high profitability to increase dividend payouts, and also forced those firms with high growth and financing demand to pay dividends. (3) The Rules have neither forced those “stingy” firms to pay dividends, nor reduced the proportion of “stingy” firms. (4) The low level “threshold dividend” set by 2006 and 2008 Rules triggered the “compliance” effect and “negative incentive”, which characterize a significant increase of firms paying “threshold dividend” and “micro dividend”. 
Serial NumberWP547 
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