"One bird in the hand" theory
The theory of "a bird in the hand" comes from the proverb "Two birds in the forest are worth a bird in the hand". The most representative work of this theory is Dividends, Earnings and Stock Prices published by M Gordon in 1959 Economic and Statistical Review. He believes that there will be great uncertainty in reinvesting the retained earnings of enterprises, and the investment risk will continue to expand with the passage of time, so investors tend to get current rather than future earnings, that is, current cash dividends. Because investors are generally risk-averse, they prefer less dividend income in the current period to more dividends with greater risks in the future. In this case, when the company increases the dividend payment rate, it will reduce the uncertainty, investors can ask for a lower necessary rate of return, and the company's share price will rise; If the company reduces the dividend payment rate or delays the payment, it will increase the risk of investors, and investors will inevitably demand a higher rate of return to compensate for the risks they bear, and the company's share price will also fall.
MM theory
196 1 year, the theoretical pioneers of dividend policy, Miller (MH) and modigliani (F), put forward the famous "MM dividend irrelevance theory" in their paper "Dividend Policy, Growth and Company Value", that is, in a perfect market without tax, dividend policy has nothing to do with the company's share price and investment. The company value only depends on the operating efficiency of the company's assets, and the change of dividend distribution policy only means how to distribute the company's surplus between cash dividends and capital gains. Rational investors will not change their evaluation of the company because of the proportion or form of distribution, so the stock price of the company will not be affected by the dividend policy.
Tax difference theory
Peleg and Cervin 1967 answered the question that dividend policy affects enterprise value for the first time. They use partial equilibrium analysis and assume that investors want to try to maximize after-tax income. They believe that as long as the personal income tax of dividend income is higher than that of capital income, shareholders will tend to not pay dividends. They think that shareholders' income will be higher when the funds are left in the company or used to buy back shares, or that the stock price will be higher than when dividends are paid; If dividends are not paid, shareholders can sell some shares at any time if they need cash. From the tax point of view, the company does not need to distribute dividends. If you want to pay cash to shareholders, you should also solve it through stock repurchase. Since 1970s, the rise of information economics has made a major breakthrough in classical economics. Information economics improves the previous assumption of impersonalization of enterprises and replaces it with the assumption of maximization of economic man's utility. This breakthrough has a far-reaching impact on the study of dividend distribution policy. Financial theorists have changed their research direction and formed two mainstream theories of modern dividend policy-the signaling theory of dividend policy and the agency cost theory of dividend policy.
Signal transmission theory
Based on the assumption that investors and managers have the same information by relaxing MM theory, signal transmission theory holds that there is information asymmetry between management authorities and external investors. Managers have more internal information about the prospects of enterprises, and dividends are a means for managers to convey their internal information to the outside world. If they predict that the company has a good development prospect and its future performance will increase substantially, they will tell shareholders and potential investors this information in time by increasing dividends; On the contrary, if it is predicted that the company's development prospects are not very good and its future profits are not ideal, then they will often maintain or even reduce the existing dividend level, which is equivalent to sending an unfavorable signal to shareholders and potential investors. Therefore, dividends can convey the information of the company's future profitability, which will have a certain impact on the stock price. When the dividend level paid by the company rises, the company's share price will rise; When the dividend level paid by the company drops, the company's share price will also drop.
Agency cost theory
The theory of dividend agency cost was put forward by Jensen and Meckling( 1976), which was developed on the basis of relaxing some assumptions of MM theory. It is the mainstream view of modern dividend theory research, which can explain the existence of dividend and different dividend payment methods. Zhan Sen and meckling pointed out: "The agency relationship between managers and owners is a contractual relationship, and agents pursue their own utility maximization. If the utility functions of the agent and the principal are different, there is reason to believe that he will not act according to the principle of maximizing the interests of the principal. In order to limit this behavior of the agent, the client can set up an appropriate incentive mechanism or supervise it, both of which will cost. " Jensen and Meekling call it agency cost, and define agency cost as the sum of incentive cost, supervision cost and residual loss. In 1990s, financial theorists found that the proportion of cash dividends paid by American listed companies showed a downward trend, which was called "disappearing dividends". Later, similar phenomena appeared in Canada, Britain, France, Germany, Japan and other countries, which were widely spread and universal internationally. In this context, Baker of Harvard University and Wolgler of new york University first put forward the dividend catering theory to explain this phenomenon.
Baker and Wurgler pointed out that due to some psychological or institutional factors, investors often have a strong demand for dividend-paying company stocks, which leads to the so-called "dividend premium" of such stocks, which can not be explained by the traditional dividend follow-up effect, mainly because the dividend follow-up effect hypothesis considers the demand side of dividends and ignores the supply side. Baker and vogler believe that some investors prefer companies that pay cash dividends to give their shares a premium, while some investors, on the contrary, give companies that don't pay cash dividends a premium. Therefore, in order to maximize the value of the company, managers usually cater to investors' preferences to formulate dividend distribution policies.
Baker and Wurgler have completed two empirical studies to test their theories. In the test of Baker and Wurgler(2004a), they proved that the managers of listed companies tend to pay dividends when the dividend premium is positive through the data of listed companies from 1962 to 2000 in COMPUSTAT database. On the other hand, if the dividend premium is negative, managers usually ignore dividend payment. In the test of Baker and Wurgler(2004b), they investigated the relationship between the fluctuation of dividend payment willingness and dividend premium of listed companies. During the sample period from 1962 to 1999, Baker and Wurgler also found that when the dividend premium is positive, the willingness to pay dividends of listed companies increases. On the contrary, if the dividend premium is negative, the willingness of listed companies to pay dividends will decrease, and both of them support the dividend catering theory.