Does Cost Stickiness Affect the Cash Dividend Policy: Empirical Evidence from China

Abstract

The dividend policy has long been of interest among researchers that study financial management and corporate finance. Previous literatures mainly analyzed based on the agency theory, free cash flow theory, major shareholder benefit transfer channel or others, the impact of cost stickiness has not been considered in the framework. Using the data of listed companies in China from 2007 to 2017, this paper examines the effect of cost stickiness on cash dividend policy based on managers’ self-interest. The result shows that firms with stickier cost pay lower cash dividends than their peers. Corporate governance will impact the relation between cost stickiness and cash dividend payouts: when corporate governance is worse, the impact of cost stickiness on cash dividend payouts is great as managers of firms with more cash holdings are willing to keep cash for self-use rather than pay dividends. Further, this paper provides evidence that cost stickiness affects cash dividends by worsening corporate governance. This paper not only contributes to accounting literature on cost stickiness, but also sheds new light on the determinants of cash dividends policy.