Does Refinancing Incentive Affect Cash Dividends Policy? Evidence from the Semimandatory Dividend Policy in China

We analyze the effect of a new regulation on the cash dividend policy of listed companies in China. Using data from China’s listed companies between 1999 and 2009, our empirical analysis shows that the relationship between the refinancing incentive and the cash dividend is not significant before 2001, and since the China Securities Regulatory Commission (CSRC) introduced a semimandatory dividend policy that directly related refinancing qualifications to companies’ cash dividend payments in 2001, companies with higher refinancing needs are more likely to pay or pay much more cash dividends. We also find that numerous listed companies pay dividends strategically to meet the requirement of regulation, which limited the effectiveness of the semimandatory dividend policy.