Analysis of Foshan Lighting's Dividend Policy bookmark0 Wuhan University Business School Tang Jianxin Zhang Honghua bookmark1 Foshan Electric Lighting Co., Ltd. hereinafter referred to as Foshan Lighting "In addition to achieving excellent business performance, the most striking thing is that there is abundant cash every year. Dividends. Real gold real estate returns shareholders to make the company favored by investors, the stock price has risen steadily, becoming the old-fashioned blue-chip stocks in Shenzhen and Shanghai; in the integrity rating of 594 listed companies in 200% of the annual market, Foshan Lighting was rated as 30 credits One of the companies. For the reasons for the success of Foshan Lighting's dividend policy, the author intends to make a brief analysis from the Western financial management theory combined with the specific situation of China's capital market.
I. Theoretical review: The correlation between dividend policy and company market value Dividend policy is a strategy for listed companies to rationally distribute after-tax income between dividends and retained earnings. In the 1950s, people began to pay attention to the correlation between dividends and the market value of the company. At present, there are three main viewpoints: the first one is the dividend-independent MM theory represented by Miller and Modigliani. According to the theory, in a perfect capital market, the company's market value has nothing to do with the dividend policy given the risk and profit, because the company must provide the same income to the shareholders under the same risk and profitability. When dividends are paid more, the value-added of stock prices will decrease. Conversely, dividends that are less frequently paid can be compensated for from stock price appreciation. Therefore, in the absence of tax or the same dividend and capital gains tax rate, investors do not care whether their income is obtained in the form of dividends or in the form of capital gains. The second view is the tax difference theory represented by Farrar and Salwyn. The theory holds that there is a tax disadvantage in the distribution of dividends, which will reduce the company's after-tax income, thereby reducing the company's market value. However, under the premise of recognizing the asymmetry tax effect, there are still two views supporting the tax independence theory: the customer effect theory of Miller and Modigliani and the legal tax avoidance theory of Miller and Scholes. Both theories use a partial equilibrium analysis method. The former assumes that the distribution of the investor's personal economic situation coincides with the distribution of the company's dividend payment level. The latter assumes that investors can use the loopholes in the tax law to legally avoid tax, so despite the existence The difference in taxation, the company's dividend policy has no effect on its market value. The third view is based on a bird represented by Gordon and Lintner. The theory holds that the uncertainty of capital gains from reinvestment in retained earnings is higher than the uncertainty of dividend payments, so investors The company's future is as follows: debit bank deposits "'Deferred income one-to-one unsold leaseback profit or loss "or in the lender) account, credited 'fixed assets clean-up' subject should include the amount of business tax payable). ! . Handling of other taxes and fees. The tax law stipulates that for domestic enterprises that pay turnover tax, they should also pay the additional tax of the turnover tax, the city maintenance and construction tax and the education surcharge. The additional taxes and fees incurred for these sale and leaseback transactions shall also be included in the deferred income “debits of the account. The accounting entries are as follows: debit “Deferred income, unrealized sale and leaseback profit and loss†subject, credited' The investment income payable by tax payable is skeptical, so investors prefer dividends relative to capital gains. In this way, the cost of equity capital will rise as the dividend payout rate declines. Investors believe that the value of dividend income of US dollar is higher than the value of expected capital gain of US dollar. Therefore, the payment of dividends is conducive to maximizing the value of the company.
The dynamics of the development of the dividend policy and its relationship with other financial policies mainly include the signal theory represented by MiUer and Rock. The theory holds that there is information asymmetry between management and external investors, and that management has more private information about the true value of the business than investors. In order to prevent the implementation of corporate investment and financing schemes due to adverse selection, managers will try to pass their private information to the party that has no information advantage, that is, investors. Dividend policy is a common way for managers to transmit signals. They combine dividends with financing and investment issues under asymmetric information to establish a comprehensive model. Investors infer the current earnings of the firm based on the signals received, thereby inferring future returns, since the value of the firm depends on the profitability of the assets. Therefore, the market value of the enterprise can be further evaluated.
Second, Foshan Lighting Dividend Policy Rationality: Reasons for Analysis%. There are a large number of investors who prefer cash dividends in China's capital market. Although the tax difference theory holds that dividends are caused by investors to avoid it because of the higher tax rate than capital gains, there is no denying that some investors have a strong preference for cash dividends. Zhang Xiaoquan and Han Dezong's empirical research on China's capital market shows that there are investors who prefer cash dividends in China's capital market. The main reasons are as follows: 1 China's dividend income is levied on the personal income tax rate of 20, for the majority of small and medium investors, they do not pay much tax, so they do not care about the lack of tax on dividend payment. US personal income tax accounts for 70% of total tax revenue! %, while China's current period is only 2.6%, the proportion of income tax is too low. On the other hand, the tax source is mainly deducted in the process of collection. Taxpayers do not declare too much, which makes the taxpayer's taxation awareness weak, and the income tax is very low. It is difficult to adjust the role of investor behavior.
2 Some investors need cash flow from dividends, so they give a high evaluation of cash dividends, which is conducive to the rise of the company's value. 3 The liquidity of the stock market is low. In this respect, the information content of the stock price is lowered, and the uncertainty of the investor's expectation on the stock price is increased. On the other hand, the investor is free to sell the urban construction tax “, other payables, education surcharges†subject.
For the above taxes and fees, it can also be considered as the initial cost according to the principle of importance, and it is directly recognized as the expenses for the current period of sales, without deferring to the lease period for apportionment. However, the author believes that these taxes and fees are usually relatively large and are closely related to the actual income of the lessee selling the leased assets or the rent paid in the future, and are included in the deferred income during the lease term or the estimated useful life of the leased asset. Amortization by stages is more reasonable. At the same time, it can also avoid the principle of abuse of the importance of the lessee, and use these taxes to adjust the profit of each period. !
Case Study Accounting 0 stocks to obtain the same amount of capital gains as dividends are restricted. From the perspective of China's capital market, the speculative fever of excessive stock price speculation “after calming down, investors are more inclined to real dividend income. From the equity structure of Foshan Lighting's 2001 annual report, it is impossible to obtain shares through free sale. The non-tradable share ratio of capital gains is about 6%. Due to the lack of liquidity in the entire capital market, even the tradable shareholders, there are many restrictions on the free sale of stocks. Thus, the investor’s preference for Foshan Lighting’s real estate policy is not enough. Odd.
2. Customer effect. Investors who prefer capital gains rather than dividend income will not let the value of the company fall due to the avoidance of cash dividends. The 'customer effect' theory gives a good explanation for this issue. Ekon and Gmber believe that investment The diversification of preferences allows them to invest in companies whose dividend policy is in line with their preferences. As a result, companies with different dividend policies will attract enough investors who prefer their dividend policy to maintain the company's share price over time. The company's dividend policy has nothing to do with its market value. Foshan Lighting's high dividend policy has undoubtedly attracted enough investors who tend to cash dividends. The customer effect has another meaning, that is, the company attracts enough After changing investors in the company's dividend policy, changing the dividend policy will become very difficult. Because once the company changes the dividend policy approved by the shareholders, the investor will vote with the foot to sell the company's stock, which will reduce the company's market value. Foshan Lighting has taken a dividend of 5 shares per 10 shares from 199. After the policy, the dividend policy has been maintained at a high level, for the following reasons: First, the company itself has ample cash flow, and second, the company's investment psychology in order to cater to the old customers who are accustomed to the high dividend policy. ...the interpretation of signal theory. Signal theory believes that the capital market responds to every action taken by the company that has a potential impact on future cash flows and company value. The dividend policy contains information on the value of the firm, and the capital market will Corporate value is assessed, so dividend policy is an important way to convey information to the capital market. However, Frank believes that companies can use other information disclosure methods to convey company value information, such as financial reports, auditors and securities analysts. Reports, etc., through the dividend policy to pass information that is beneficial to the company's value does not have a cost advantage The author believes that companies should adopt information transmission methods that are difficult for companies that do not have good investment projects to follow. Foshan Lighting's dividend policy can be regarded as an effective way of positive signal transmission, because the use of high-distribution dividend policy reduces other Due to the poor performance of the business, the company with insufficient cash flow is in danger of emulating. This dividend policy indicates that it has and will have the ability to create the cash flow needed to distribute dividends. This requires the support of the company's good performance. In fact, Foshan Lighting Since the introduction of the first halogen lamp production line in the 1980s and becoming the leader of the product, its operating performance has been good; before the company went public, it was the first to introduce car lights and motorcycle lights to further increase its business performance; in 1998, it also technology The high-content T8 and T5 high-efficiency energy-saving fluorescent lamps have been developed as leading products, and have produced good results. All of these are the entity guarantees for the company to implement a high dividend policy.
Third, Foshan Lighting Dividend Policy Further Analysis: Several Questions 1. Whether the high dividend policy is compatible with the company's good investment projects. Myers and Ma 2. The high dividend policy is based on whether all shareholders or a minority of non-tradable shares are major shareholders. In the case of good investment opportunities, the company should adopt the residual dividend policy, so as to maximize the value of the company, thus increasing the wealth of all shareholders. Foshan Lighting's dividend policy is clearly contrary to this principle. The company's largest shareholder is the Foshan State-owned Assets Management Office. The company's 2001 annual report disclosed that the first major shareholder's code of conduct did not exceed the shareholders' meeting and the board of directors and directly or indirectly interfered with the company's decision-making and business activities. However, in the Chinese securities market, the decision-making intervention of the first-largest legal person shareholders on various operations and finances of listed companies has been a chronic illness. The high dividend policy is in line with the interests of the largest shareholder: on the one hand, because the first largest shareholder is a legal person and cannot be listed for circulation, it is expected that the appreciation of the stock price will not be as tempting as it is in the current period. Cash dividend income; on the other hand, the legal person's initial cost is much lower than the market price of the general outstanding shares, but enjoy the same distribution plan in the cash dividend plan. In the case of the same income per share and lower cost, the return on investment of the largest shareholder is obviously much higher than that of the general tradable shareholders. This distribution plan is actually the erosion of the interests of the minority shareholders by the major shareholders, violating the basic The principle of dividends of 'the same share and the same benefit'. In summary, China's current capital market is a non-effective market. Investors' short-term speculation is more psychological in terms of speculative gains, and largely does not care about the company's dividends. In the long run, this is not in line with the investors themselves. Interests, while a large number of listed companies are not allocating "dividends policy" has also contributed to this speculation. In this respect, Foshan Lighting's high dividend payout policy is very valuable, to a large extent The capital market investors are led to a rational track. But it is undeniable that the company's dividend policy cannot be simply judged by the number of dividends and the way it is distributed. The dividend policy is the company's most important financial policy. One of them is fundamentally aimed at maximizing the market value of the company. In China's current non-effective capital market, simply stabilizing the stock price or a certain degree of growth cannot be the single target of the company's dividend policy because of the non-effective market. The stock price on the stock is often a reflection of short-term benefits and does not reflect the company's true financial situation. Only in this way can we fundamentally realize the financial goal of maximizing the market value of the company, and can standardize China's capital market and make it truly a place to optimize resource allocation. !
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