Does an innovative managerial cash dividend policy enhance a firm’s total factor productivity?

Purpose This study investigates the impact of cash dividend smoothing on total factor productivity from the perspective of a firm’s dividend policy. Design/methodology/approach Using data from A-share listed companies in Shanghai and Shenzhen spanning from 2008 to 2022, this study empirically investigates the impact of cash dividend smoothing on total factor productivity. Findings This study finds that, firstly, firms adopting a smooth cash dividend policy experience a significant increase in total factor productivity, a conclusion supported by multiple robustness tests. Secondly, a smooth cash dividend policy enhances total factor productivity by addressing financial constraints and fostering innovation. Lastly, the impact of cash dividend smoothing on total factor productivity is more prominent in firms characterized by low dividend levels, weak bank competition and those in the growth phase. Research limitations/implications Firms facing constrained business activities and limited internal cash reserves can use cash dividend smoothing as a tool to mitigate financial constraints. By conveying positive business outlook information to the market, firms can attract external financing and facilitate investment, thereby enhancing total factor productivity. Practical implications From a corporate governance perspective, optimizing dividend policies can serve to improve the overall governance environment. This strategic approach can empower management to align dividend distributions with business goals, thereby bolstering total factor productivity. Originality/value The findings presented in this paper not only contribute to the ongoing discourse on cash dividend smoothing within signaling and principal-agent theories but also offer a novel avenue for enhancing total factor productivity.