The paradox of cash dividends is that the increase or decrease of cash dividends may increase the agency cost between the controlling shareholders and small shareholders and thus does harm to the interests of the small shareholders. It is one popular view that the payment of cash dividends can protect the interests of small investors. On the condition that the high percentage of nontradable stocks exists, the paper systematically and theoretically analyzes the relations between cash dividends and small investors’ interests from the view of agency cost, and puts forward the paradox of cash dividends and three conclusions. The author thinks the behavior of increasing the payment of cash dividends is not proper. To solve this paradox, the precondition is that all the stocks issued by listed companies can be traded in the secondary market.
The Study of Finance and Economics