The performance of dividend policy—Based on financing constraints and agency cost trade-off

The performance of dividend policy should not only reflected in returning money to investors, but also function as special corporate governance mechanism. On the basis of the dividend theory from Lintner and Rozeff, this paper measures the dividend policy effectiveness under financing constraints and agency cost with the bilateral stochastic frontier analysis method. We also make an empirical analysis on Chinese listed companies by this model. The result shows that financing constraints and agency cost make the actual dividend payment misaligned toward the low or high direction respectively. Their combined action makes the dividend payment too low and the former factor results in the dominating loss of dividend policy effectiveness in our samples. We argue that the priority to improve the performance of dividend policy is to strengthen the information transparency of capital market and increase the external financing channels.