2.2 Factors affecting the dividend payout policy
Many factors affect the profitabilityratioand dividend policy. We divided factors into external factors and internal fators, and external factors include legal restrictions and environmental factors, while internal factors include shareholders factors and profit ability.
(1) The legal restrictions
The legal limit is the premise of all policy makers. It is the first and basic thing the management should consider when they develop the dividend policy. In protecting the interests of shareholders and creditors, the relevant laws and regulations impose various restrictions on the company's dividend distribution policies,including the limit of the listed companies capital use. The payment of dividends should not reduce the authorized capital of the company (Michaely, 2000). If the company's capital has been reduced or caused by the reduction of capital due to the payment of dividends, it is prohibited.
Legal restrictions on corporate earnings mainly reflected in the revenue, the enterprises which compliance with national tax policies can be benefited by preferential tax treatment and enhance corporate profitability. Therefore, the evaluation of the profitability of enterprises is inseparable from its tax environment analysis.
(2) Environmental factors
The development of the national economy is cyclical, when a country's economy in a different development cycle, its dividend policy will be different(Myers andMajluf, 1984). When inflation occurs, the company's available funds will decline in purchasing power, and capital shortage comes, then companies will choose to surplus as the compensation for the loss. The purchasing power of the dividend payment will decline when the financing environment is more relaxed, more sources of financing, the balance can be larger, and then it has the financial funds to payment the possibility of dividends, so the ability of the payment of dividends will be relatively strong.
Environmental factors include the survival and development of enterprises favorable factors, which is called opportunity; also includes the enterprise survival and development of unfavorable factors, which is called threaten. Therefore, companies must make good use of opportunities to defuse the threaten.
(3)Shareholders factors
Fama (1999) believed that the company's dividend policy is ultimately decided by the board of directors representing the interests of shareholders, the interest and request of shareholders therefore cannot be ignored. Shareholders, from their own economic interests and needs, will have a definite impact on the company's dividend distribution.
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