The Impact of Dividend Policies and Financing Strategies on the Speed of Firms’ Capital Structure Adjustment

Yan Zou,Qinghui Bai,Daqing Gong

doi:10.1155/2022/3209502

Abstract

Based on the framework of the dynamic adjustment model, this paper examines the impact of dividend policies and financing strategies on the speed of capital structure adjustment and explores the relationship between dividend distribution and financing behavior. The empirical results show that if the firm pays less cash dividends, the capital structure adjustment speed is faster, and the dividend distribution behavior conflicts with financing needs. If the firm pays more cash dividends, the capital structure adjustment speed is slower, and the high dividend policy conflicts with market timing financing strategies. In a word, the behavior of dividend distribution has a significant impact on the speed of capital structure adjustment, and the conflict between dividend distribution and financing strategy affects the speed of capital structure adjustment. This paper provides a new perspective for optimizing capital structure, regulating dividend distribution, and evaluating the rationality of financing behavior.

Highlights

Since Modigliani and Miller [1] proposed the MM theory that capital structure has nothing to do with company value in 1958, scholars carried out a comprehensive study on capital structure. e main academic viewpoints include net income theory, agency theory, signal theory, and so on.ese theories have played an important role in explaining corporate financing behavior and capital structure adjustment
E conflict relationship is manifested as follows: first, when the dividend is too little, the free cash flow of the enterprise is abundant, and the enterprise deviates from the optimal capital structure seriously, the capital adjustment speed is slow. is shows that dividend distribution behavior may conflict with financing behavior
From the perspective of external finance weighted-average market-tobook ratio, the overall cumulative weighted market-to-book ratio of the cash group is higher than that of companies with noncash dividends. e possible reason is that the market timing has been carried out as a tunneling to transfer of benefits for major shareholder. e secret of dividend distribution is about a certain conflict of interest between market timing financing strategy and a large dividend payment behavior

Summary

Introduction

Ese theories have played an important role in explaining corporate financing behavior and capital structure adjustment. These theories mainly explain capital structure from a static perspective. Studies have shown that Chinese listed companies have a target capital structure, and the trade-off theory plays a leading role in the speed of capital structure adjustment [5,6,7,8,9]. About the research on dividend, scholars mainly focus on the free cash flow hypothesis, tunneling, and excessive investment or other perspectives to interpret the motives of company dividend distribution [12,13,14], but these theories cannot fully explain the various anomalies arising from the capital market. We believe that the dividend payment and the capital structure adjustment process are carried out synchronously

Methods

Results

Conclusion