| Abstract | In recent years, the booms and fluctuations of real estate prices in China have aroused widespread concern among regulators and society, and academic communities have also launched a large number of studies on the issues of housing prices. But so far, most of the existing studies focus on the relations between housing prices and other macroeconomic variables, only a few studies have explored the impact of house prices fluctuations on the financial decision-making behaviors of companies, so there are still a battery of other financial decision-making behaviors of companies which could be impacted by the fluctuations of house prices waiting for us to study further. This paper believes that previous studies neglect a key element: financial flexibility. Taking the Chinese situation as an example, even if calculated at the average mortgage rate of 30%, the value of the company's mortgage financing can be increased by 0.3 Yuan with 1 Yuan increase in the market value of corporate real estates, according to the mortgage guarantee channel effect. But Zeng (2012) shows that with 1 Yuan increase in their real estate’s market value, the Chinese listed companies’ debt increased only 0.04~0.09 Yuan, which is equivalent to that there are still 0.21~0.26 Yuan unused debt capacity have been preserved by companies in the form of debt financing flexibility. As a result, the widely fluctuations of macro housing prices will certainly lead to the volatility of potential debt financing capacity of companies (i.e., the external debt financing flexibility), and how will this impact the micro financial decision-making behaviors of companies?
Based on the realistic background of sharp prices fluctuations in Chinese real estate market during 2003~2014, and from the perspective of financial flexibility theory, this paper theoretically analyses and empirically studies the impacts of both the fluctuations of house prices and related macro-control policies on corporate dividend policy. The empirical results are as follows: During the stage of rapid rise in house prices after the implementation of the bidding system of state-owned land (2003~2010), the substantial increase in the value of real estate held by companies results in a substantial increase in their external financial flexibility. Therefore, the higher the market value of the real estate held by the companies, the more willing to pay dividends, and the level of dividend payments is also significantly higher. Moreover, the above results still hold true by employing intertemporal comparison and instrumental variable two stages’ regressions to control endogeneity. However, through further grouping companies by their external financial flexibility, and subgrouping the sample periods according to the supervision intensity of semi-mandatory dividend policy, we find that the shortage of external financial flexibility and the constraint of semi-mandatory dividend policies are the fundamental reasons for companies to rely on external financial flexibility to issue cash dividends. When the houses purchase restriction policies led to slower growth in house prices (2011~2014), the companies’ external financial flexibility which endowed by the rising house prices began to decline, which makes the cash dividend volatility of companies with insufficient reserves of internal financial flexibility and holding higher proportion of real estate increase significantly. And as to the form of dividend payment, the above companies prefer to increase the stock dividend (that is to reduce the proportion of cash dividends) to retain more internal funds, so as to preserve financial flexibility.
This study not only provides a new theoretical perspective of financial flexibility to understand the impacts of fluctuations of macro house prices on micro companies' financial decision-making behaviors. At the same time, it has practical implications for both micro enterprises and regulatory authorities: Firstly, from the perspective of corporate financial decision-making, companies should fully understand the agency cost of excess reserves of financial flexibility, and optimize the dynamic management of financial flexibility through a combination of dividend policy and other financial policies. Secondly, from the perspective of macro-supervision policies, the relevant government departments should establish a composite analysis and evaluation mechanism for policy sets based on both macro- and micro-big data. And regulators should predict, analyze and evaluate the effects for policy sets rather than single policy, so as to realize the optimal interactions of macro-control policies, and not only to achieve macro-control goals (such as housing prices) , but also to promote stable and healthy development of companies simultaneously.
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