“Government’s hand” versus “Market’s hand”: Which one is more efficient?--Evidence from IPO Cash Dividend Commitment
Read
DownLoad |
| Title | “Government’s hand” versus “Market’s hand”: Which one is more efficient?--Evidence from IPO Cash Dividend Commitment
|
| Author | Wang Yuetang and Wang Guojun |
| Organization | School of Management, Nanjing University |
| Email | wangyt@nju.edu.cn |
| Key Words | Cash dividend commitment; IPO approval; IPO underpricing; Capital allocation efficiency |
| Abstract | Cash dividend is one major way that firms reward their investors. A long-term and stable dividend policy is one sign of a mature capital market. There are established legal environments and investor protection institutions in developed countries, so government do not intervene in corporate dividend policy. In contrast, there are insufficient institutional supports in emerging markets, so regulations are needed to discipline firms’ distribution behavior. In order to protect the interests of investors and to develop sound capital market, China’s Securities Regulatory Commission (CSRC) requires the "Initial Public Offerings"(IPO) companies to make commitment on future dividend policy in firm articles. This new policy allows both government regulation and firms’ discretions and create research opportunity to compare efficiency of resource allocation between government force and market force. We find that both CSRC and investors favor IPO firms that commit high dividend payout which have better post-IPO performance. The result indicates that dividend payout commitment ratio signals firm value, and the new policy increases resource allocation efficiency. We also find that in the group of IPO firms that commit high dividend payout, firms that make unconditional commitment to pay cash dividends have better post-IPO performance and are less underpriced. But these firms are not more likely to be approved by CSRC. This indicates that dividend commitments conditions also signal firm value. The results show that investors are more efficient in estimating firm value than CSRC. This study not only provides empirical evidence for future IPO registration-based system reform, also shows the practical value to let the market decide the allocation of resources addressed by the Third Plenary Session of 18th CPC Central Committee. |
| Serial Number | WP640 |
| Time | 2014-08-05 |
|