Abstract "Dividend Discount", the concept was firstly introduced by Baker and Wurgler in 2004. It indicates that the corporate value
of dividend is lower than the value of non-dividend. Cash dividends are always been premium in the United States in the past decades.But in China the dividend discount is common phenomenon. After a short review, we find that the motivations of signaling, alleviating two types of agency conflicts and catering to investors are benefit to the dividend corporates. However, the motivations of tunneling by major shareholders and catering to regulations may do harm to the value of dividend corporates. Using the data of A-share listed companies from 2008 to 2015, we explore Chinese “Dividend Discount Puzzle” through the path of "Dividend Motivation - Dividend Value Effect - Dividend Discount". We establish two different ways, one is based on tunneling, and the other is based on catering to regulation. The basic conclusions are: (1) The more major shareholders tunnel, the more other investors withdraw from investment and the cash payout cuts the company’s value in the view of shareholding ratio of major shareholders and abnormal high dividends. (2) Cash dividends which cater to the policies of China Securities Regulatory Commission (CSRC) cannot reduce the value of the company using threshold earnings and dividends, potential refinancing needs and low dividends to characterize the motivation of catering to the regulation. It is tunneling, not regulation catering, which leads to dividend discount. Furthermore, the value of dividend corporates is also increased even if the two motivations of tunneling and catering to the regulation work together, which means that major shareholders may take catering as mask of tunneling. We analyze the “Dividend Discount Puzzle” initially, and define its essence precisely. As opposed to the “Regulatory paradox”, we also find that the effect of the current regulation policy is positive. Finally, we suggest that the regulator should focus on tunneling of major shareholders in order to increasing the company's value in the future.
Key Words Cash Payout; Dividend Discount; Tunneling; Company’s Value; Regulatory Paradox