CRITERIOS DE EVALUACIÓN Se trata de una evaluación:

Distribution of cash dividends is one of the most important methods for listed companies to mitigate the agency cost of expropriations by dominant shareholders (Easterbrook, 1984; La Porta, López-de-Silanes, Shleifer, and Vishny, 2000a), thereby it is the foundation for the development of the stock market. However, the dividend policy in the case of publicly listed firms in China is more complicated compared to other economies for several reasons.

First, the average cash dividend payout ratio is low; even lower than the one-year deposit savings interest rate. Up to the end of 2010, Chinese listed firms have raised approximately US$632.35 billion (CNY 4,300 billion, using an exchange rate of 6.8 by the end of 2010) through initial public offerings (IPOs), seasoned equity offerings (SEOs) and rights offerings. However, the total aggregated cash dividend payments amounted to US$264.7 billion (18,00 billion CNY), of which tradable shareholders were entitled to only US$88.2 billion (tradable shares take up one third), and an aggregated implied dividend yield of 13.9% (0.66%6annually) for those holding the tradable shares. Meanwhile, the sum of transaction costs and tax on dividends is around US$147.05 billion (CNY 1,000 billion), which is even higher than the total cash dividend payments to individual investors. According to the statistics from the CSRC, between 2001 and 2011, cash dividends of listed companies only accounted for 25.3% of their net profits, while this figure is usually

6_{13.9%=88.2/632.35*100%. This average cash dividend payment rate 0.66% is calculated as 13.9% divided}

around 40% for international mature markets7. These findings indicate that A-share companies in China pay less cash dividends to investors than firms in other markets.

Figure 2.3 illustrates total cash dividend payments by comparison with total financing by listed A-share companies between 1992 and 2011. Contrasted to total financing, Chinese listed A-share companies pay much less in cash dividends over the past 20 years. Moreover, 2010 sees the most dramatic increase in total financing by listed A-share companies, peaking at about CNY 925 billion. By contrast, only 440 billion cash dividends are paid in this year.

Nevertheless, there is a dramatic increase in cash dividends, from 144 to 550. This rise is particularly noticeable between 2008 and 2011, during which time cash dividend payments tripled. Meanwhile, there is clear statistical growth in cash dividends from 2008, when listed A-share firms reward investors in cash dividends that are greater than the money they raise. As discussed later, this contributes to the regulatory reform on cash dividend payments. To sum up, although cash dividend payments increase since 2008, the total cash dividends paid out is considerably less than total financing by listed A-share companies on the two stock exchanges.

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Fama and French (2001) report a substantial decline in the proportion of dividend-paying firms in the 1990s in developed countries, from 66.55 in 1978 to 20.8% in 1999. Denis and Osobov (2008) also displays significant reductions in the proportion of dividend-paying firms across five developed countries; the US, Canada, the UK, Germany, and France. Especially in the US, the cash dividend payout is remarkably stable, accounting for 20% of total earnings over the period of 1984-2003. Yet, the percentage of dividend payers begins to increase from 2001 (Julio and Ikenberry, 2004).

Figure 2.3: Total financing and cash dividend of A-share companies during 1992- 2011

Figure 2.3 compares total cash dividend payments to total amount of financing through IPO, right offerings, and seasoned issues by Chinese listed A-share companies over the period from 1992 to 2011. Data source is from CSMAR database.

Second, the continuity and stability of cash dividend payments are insufficient. Such poor dividend payments behaviour is associated with the wide variation in dividend payments across Chinese listed firms. According to the CSRC, 854 firms (accounting for 39% of total A-listed firms) do not pay dividends in 2010, 522 firms fail to pay dividends during the successive 3-years from 2008 to 2010, 422 firms do not make dividends during a successive 5-year period from 2006-2010. More than 40 listed firms do not pay out dividends of any form since listing, even if they earn huge profits up to 20118. A considerable number of listed firms do not reveal specific reasons for not distributing cash dividends. In particular, those firms with high-performance do not fully disclose the reason for not distributing dividends, and the purported usage and expected return of the undistributed return, as well as reasons for discrepancy between actual returns and expected returns. This phenomenon induces individual investors to describe Chinese listed firms as “tiegongji”, which means “real scrooge”.

Third, not only anecdotal but also empirical evidence suggests firms have a preference for stock dividends over cash dividends(H. D. Anderson et al., 2011; Cheng, Fung, and Leung,

8_{Disclosed by the CSRC, there are 386 Chinese listed companies that do not pay dividends within the}

successive 10 years over the period from 2001-2014. Of them, 91 never pay dividends of any form. According to Anderson et al. (2011), over half of Chinese listed firms do not pay dividends of any form during the period of 1990-2008.

0 100 200 300 400 500 600 700 800 900 1000 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11

Total financing and cash dividend payments of A-share companies during 1992-2011 (CNY in billion)

Cashdividend Total financing

2009; G. Wei and Xiao, 2009; J. G. Wei, Zhang, and Xiao, 2004)9. Why are stock dividends so popular in China when such distributions are, at least in theory, cosmetic changes with no impact on proportional ownership or future cash flows? Issuing stock dividends is often perceived as a cosmetic change whereby firms merely transfer from retained earnings to the capital account. Some of the answers may lie in China’s emerging capital markets, where companies have a relatively low level of corporate governance and whose ownership structures differ from companies domiciled in developed financial markets.

It should be noted that it is not mandatory for listed firms to pay dividends in China10. China’s Company Law andLaw of Securitiesstipulate that profits distribution of any listed firm is to be decided by the firm itself. It is the board of directors and shareholders’ meeting that has the right to decide whether, and how much, to distribute. However, in practice, the dividend policy of Chinese listed firms lacks consistency, rationality, and stability (CSRC, 2012).

Listed companies have low incentives to distribute dividends and reward their shareholders due to many reasons. On the one hand, both public enforcement and private enforcement are inadequate and ineffective to improve the transparency of dividend policies. Particularly, regulatory authorities, such as the CSRC, have no means of enforcing punitive action against expropriations of minority shareholders through profit sharing by listed firms. On the other hand, minority investors do not play an active role in determining a firm’s dividend policy. The boards of directors do not take into account the views of minority shareholders and independent directors in dividend policy, because the former rarely participate in shareholder meetings while the latter are not independent with the board of directors. As a result, the process of decision making on dividend payments is not clear and transparent.

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Anderson, et al., (2011) summarize that about 20.14% of Chinese listed companies pay stock dividends with an average payout ratio of 0.37 over the period 1992-2008, 35.05% of Chinese listed companies pay cash dividends with an average payout ratio of 0.13 per share.

10_{Mandatory dividend policy refers to a certain fraction of net income being paid out as dividends, which is}

Investors count on short-run share capital gains rather than cash dividend gains. Therefore, it seems that, when the proportion of private shareholding is high, managers may cater for a preference for stock dividends in order to raise more capital (J. G. Wei et al., 2004).