Who prefers regular dividends? The effect of inventory level and firm operating efficiency on dividends in an emerging market


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Stable regular dividends can deliver the steady operation of a firm’s performance to its investors. When firms experience lower operation efficiency and more negative performance, they can affect their cash burden and lower the regular dividends. According to the cash conversion cycle theory, quicker inventory turnover could benefit the firm, and it is a significant signal of efficiency and high performance. In the real business environment, the expectation of future production, logistics and inflation can all affect managers’ decisions. This paper uses data from all Chinese manufacturing companies listed on the Shanghai and Shenzhen stock exchanges from 2017 to 2020 as a sample. The paper provides the empirical causality between inventory turnover, operating efficiency indicators, and dividend distribution, by applying the regression method to find the causality relationship between inventory as the efficiency indicator and the distribution of dividends. The findings indicate that inventory consideration can be complicated and experience the inverse U-shape relationship with dividend decisions. Further, state-owned enterprises (SOEs) have different considerations about operating efficiency. They prefer to pay stable regular dividends, even if they are under pressure on operating efficiency and suffer from large inventories. SOEs believe that following political guidance and meeting their social obligations is their prioritized mission.

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    • Table 1. Variable definitions
    • Table 2. General statistics
    • Table 3. Dividends and inventory circulate efficiency
    • Table 4. ROA and inventory circulate efficiency
    • Table 5. Non-linear dividends and inventory circulate efficiency
    • Table 6. State-owned-enterprise and inventory circulate efficiency on dividend
    • Table 7. Heterogeneity in different exchanges
    • Table 8. Summary of findings
    • Conceptualization
      Haibin Piao, Dachen Sheng
    • Data curation
      Haibin Piao, Dachen Sheng
    • Formal Analysis
      Haibin Piao, Dachen Sheng
    • Investigation
      Haibin Piao, Dachen Sheng
    • Methodology
      Haibin Piao, Dachen Sheng
    • Software
      Haibin Piao, Dachen Sheng
    • Validation
      Haibin Piao, Dachen Sheng
    • Writing – original draft
      Haibin Piao, Dachen Sheng
    • Writing – review & editing
      Haibin Piao, Dachen Sheng
    • Supervision
      Dachen Sheng