Semi-mandatory Dividend Policy and Investment Efficiency: Evidence from Listed Companies in China

Abstract Using the new regulatory policy in 2008 as a natural experiment, this paper examines the impact of Semi-mandatory Dividend Policy (hereinafter referred to as the policy) on investment efficiency. It shows that the policy significantly improves the investment efficiency of the experimental group. The improvement effect of the policy is realized by alleviating the agency problem and increasing the stock liquidity. Further study finds that the policy significantly reduces the investment-cash flow sensitivity and increases the cash-cash flow sensitivity of the experimental group. Affected by the policy, companies implement relatively conservative investment decisions and active liquidity management decisions. However, in companies with poor accounting information quality or strong refinancing demand, the effect of improvement on investment efficiency is weakened. JEL classification numbers: K22, G35, G38. Keywords: Semi-mandatory Dividend Policy, Investment Efficiency, Cash Flow.