Corporate Innovation and Dividend Payout Policy: Evidence

Corporate Innovation and Dividend Payout PolicyEvidence From China’s Listed CompaniesLIAO, Liping; TSO, Kwok Fai Geoffrey; YANG, Jingjing

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Publication details:LIAO, L., TSO, K. F. G., & YANG, J. (2021). Corporate Innovation and Dividend Payout Policy: Evidence FromChina’s Listed Companies. IEEE Access, 9, 61090-61100. https://doi.org/10.1109/ACCESS.2021.3072906

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Corporate Innovation and Dividend PayoutPolicy: Evidence From China’s Listed CompaniesLIPING LIAO 1, KWOK FAI GEOFFREY TSO 2, AND JINGJING YANG 31Management College, Guangdong Polytechnic Normal University, Guangzhou 510665, China2Department of Management Sciences, City University of Hong Kong, Hong Kong3School of Finance, Guangdong University of Foreign Studies, Guangzhou 510006, China

Corresponding author: Jingjing Yang ([email protected])

This work was supported in part by the Department of Science and Technology of Guangdong Province under Grant 2018A030313271,Grant 2019A101002069, Grant 2020A151501706, and Grant 2020A1515010413; and in part by the Guangdong Planning Office ofPhilosophy and Social Science under Grant GD20CGL01.

ABSTRACT Using the sample of China’s listed companies, this study investigates the effect of corporateinnovation on dividend payout policy.We expect that managers frommore-innovative firmswould havemoreconfidence in future corporate performance, and hence, be more motivated to signal future profitability instock market through distributing cash dividends. Employing the number of effective patents to measurecorporate innovation, we find that the propensity to pay cash dividends is higher among more-innovativefirms. Moreover, more-innovative firms usually pay more cash dividends to their shareholders than thatof less-innovative firms. The empirical results are robust to different model specifications and to varioussubsamples based on firm size. This study emphasizes the importance of stimulating corporate innovation inboth domestic economic growth and shareholder protection. This study sheds light on the role of corporateinnovation in major corporate decisions in China, which is the largest emerging economy in the world.Moreover, the empirical findings of this study also have a policy implication to Chinese regulatory bodieswho have been urging firms listed in domestic stock exchanges to pay cash dividends. Regulatory bodiesmay spend more effort on encouraging innovation, as corporate innovation motivates the managers of listedfirms to distribute profits to shareholders.

INDEX TERMS Corporate activities, financial management, innovation management.

I. INTRODUCTIONInnovation and property right protection have been a greatchallenge to sustainable economic growth in most emergingeconomies. China has overtaken Japan as the second-largesteconomy in the world since 2010. However, China’s eco-nomic growth has been criticized as lacking technologyinnovation. To stimulate sustainable economic growth andnational competitiveness, Chinese government has spent agreat effort on promoting the research and development(R&D) activities during the past decade. It is noteworthythat China’s patent office received the highest number ofapplications in the world in 2019 as reported by the WorldIntellectual Property Organization (WIPO). A report by theNational Science Board (NSB), which serves as an advisorto both the US President and the Congress, showed that

The associate editor coordinating the review of this manuscript andapproving it for publication was Davide Aloini.

the center of high-tech gravity was shifting to Asia, andto China particularly, and that China’s share of the world’shigh-technologymanufacturing increased from 8% in 2003 to24% in 2012, in comparison with the number one US shareof 27%. China’s high technology manufacturing remainsexpansive. The total R&D input of high technology manu-facturing was 380.4 billion RMB, and the revenue from hightechnology manufacturing enterprises reached 15.78 trillionRMB in 2019. According to the report by World Intellec-tual Property Organization, China tops the ranking for boththe source (filings by China) and the destination (filed inChina) for the four types of intellectual property, namelypatents, utility models, trademarks and industrial designs) in2013. PwC reports that, from 2007 to 2015, in-country R&Dspending increased 120 percent for China but only 34 percentfor U.S. Moreover, many leading Chinese enterprises havebeen ranked as the top 500 companies based on their R&Dexpenses. For example, the R&D expenditure of Huawei,

61090 This work is licensed under a Creative Commons Attribution 4.0 License. For more information, see https://creativecommons.org/licenses/by/4.0/ VOLUME 9, 2021

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L. Liao et al.: Corporate Innovation and Dividend Payout Policy: Evidence From China’s Listed Companies

FIGURE 1. This figure shows that managers from more-innovative firmsmay be more willing to distribute cash dividend to signal furtherprofitability.

a Chinese technology company, has been ranked as the top20 highest during the past decade according to the reportby European Commission. The rapid growth of patents pro-vides a fertile testing ground for the research upon corporateinnovations in China. However, the empirical evidence onthe role of corporate innovation in China and other emergingeconomies is quite limited.

Corporate innovation has become the focus of financialresearch in the recent years. As a crucial contributor to futurecorporate profits, innovation is pursued by many firms acrossa wide spectrum of industries [3], [25], and helps firms cre-ate new market spaces [12]. Compared with non-innovators,innovative firms usually grow significantly faster [24], [25],have higher market shares [5], and have higher market valua-tion [4], [7], [23]. Given the importance of corporate innova-tion, it may consequently exert influence on major corporatebehaviors. We argue that innovative firms are more likely todistribute cash dividends to their shareholders than that ofless-innovative firms. Apart from the agency theory, anotherview of cash dividend payout is the signaling-effect (Fig. 1).Literature suggests that managers pay cash dividends as acredible signal to stock market for the prediction of futureearnings or increase in the future cash flows [18], [19], [20].Since corporate innovation helps firms create new marketspaces [12], gain higher market shares [5], [8], and increasemarket value [23], managers from innovative firms may bemore motivated to signal good future performance throughcash dividends.

As such, this study investigates the relation between cor-porate innovation and cash dividends in China during theperiod from 2007 to 2017. The percentage of Chinese listedfirms that pay cash dividends to their shareholders has beenincreasing since early 2000s. Most studies argue that cashdividends are beneficial to investors, especially minorityinvestors in China. Eun and Huang [9] suggest that cash

dividends signal shareholder-friendly corporate governance,and thus individual investors are willing to pay a premiumfor cash dividend paying stocks in China. Their findings arein line with the signaling-effect of cash dividends. Using thenumber of effective patents to measure listed firms’ innova-tion, we find that firms with more patents are more likelyto pay cash dividends to their shareholders. The dividendpayout amounts of more-innovative firms are also higher thanthat of less-innovative firms. The empirical results are robustto different model specifications and to various subsamplesbased on firm size.

Existing studies argue that corporate innovation is sus-ceptible to financial constraints, as innovation activities hasa long-term investment cycle and requires an assurance tofunding sources [4], [25]. Accordingly, our empirical findingsraise concern about the future innovation activities of listedfirms, as paying cash dividends reduce their level of cashholdings. It is noteworthy that the cash dividend payout ratesof Chinese listed companies are among the lowest in theworld from 1990 to 2004 [27]. The dividends/earnings ratiosof Chinese listed firms, which were in the range of 25% to35%, are much lower than that of European firms, which werein the range of 40% to 60% [28], and US firms, which werein the range of 60% to 80% during 1990-2001. We also findthat firms with more patents (i.e., with above-median patents)distribute on average 33% of net profit to their shareholders.In general, listed firms retained the majority of their earnings.Therefore, paying cash dividends are less likely to impedecorporate innovation in China.

This study contributes to the literature on the role of cor-porate innovation in major corporate decisions, which hasrarely been examined. Moreover, the empirical findings ofthis study also have a policy implication to Chinese regulatorybodies who have been urging firms listed in domestic stockexchanges to pay cash dividends, as corporate innovationhelps motivate listed firms to distribute their profits to share-holders.

II. LITERATURE REVIEW AND HYPOTHESISDEVELOPMENTAs mentioned earlier, corporate innovation promotes growthand boosts market valuation [4], [5], [7], [23], [24]. Manyexisting studies also investigate the determinants and con-sequences of corporate innovation [1], [3], [25]. Thesestudies find that innovation plays an important role inmajor corporate decisions, such as mergers and acquisi-tions (M&A). More specifically, acquiring innovation is animportant motive for firms undertaking M&A. Furthermore,technological overlaps between acquiring and target firmshave a positive effect on the incidence of M&A deals [3].Innovation-driven acquisitions also have better long-term realoutcomes, i.e., higher sales growth and better long-term stockmarket performance [3].

Firms’ innovation activities can be measured by usingeither innovation input (i.e., in-house R&D investment) oroutput (i.e., the number of effective patents). R&D investment

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is a critical element of innovation. However, it is notewor-thy that R&D investment is associated with a high risk,as some R&D activities may fail. Additionally, R&D datamay be severely distorted when various subsidy schemes areprovided, especially in China [17]. Therefore, most studiesemploy patents as the proxy for firms’ innovation [3], [23].As the output of innovation activities, patents are one of themost-known isolating instruments that prevent competitorsfrom easily imitating valuable firm-specific assets for com-petitive advantages [22]. Therefore, this study employs thenumber of effective patents to measure listed firms’ innova-tion.

Since corporate innovation is a crucial contributor to futurecorporate profits and market valuation, and is also a keytrigger of M&As, it may affect other corporate behaviors,such as cash dividend payouts. Dividend policy has been ofinterest in the finance literature since the evolvement of thecash dividend puzzle ofMiller andModigliani [18]. The mostcited explanation on the cash dividend puzzle is based on theagency theory. Cash dividend payouts may reduce agencycosts as cash dividend payouts increase the propensity ofusing external financing to monitor the managers at relativelylower cost [29]. Moreover, managers may act in their owninterest at the expense of the shareholders by spending cashfor their own benefit, and cash dividend payouts can decreasethe source of cash under the manager’s control [30]. Further-more, managers usually underinvest because of risk aversion,and smooth dividend payouts using the cash retained fromunderinvestment [16].

Another view of dividend payout is the signaling-effect,which is more related to this study. The signaling the-ory argues that managers pay cash dividends as a crediblesignal to the market for the prediction of future earningsand increase in the future cash flows [18], [19], [31].Signaling-effect has been supported by many studies. Forinstance, Kalay and Loewenstein [32] and Nissim andZiv [20] report a positive relationship between dividendchanges and listed firms’ future earnings in the US.A more recent study by Bozos et al. [33] using datafrom the London Stock Exchange also supports the div-idend signaling theory. Hoang and Hoxha [13], [14] fur-ther report that payout policy is influenced by investmentpolicies.

The signaling-effect is a major explanation for thecash dividend payouts of the listed firms in China.Cheng et al. [34] and Chi et al. [35] report that to a certainextent, paying cash dividend could provide a signaling-effectto the stock markets in China. The Chinese listed firms withhigher earnings per share (EPS) are claimed to be morelikely to pay cash dividends. Furthermore, Eun and Huang [9]argue that cash dividends signal shareholder-friendly cor-porate governance, and thus the individual investors arewilling to pay a premium for cash dividend paying stocksin China.

Asmentioned above, corporate innovation helps firms gen-erate profits and boost market valuation [4], [5], [23], [24].

In conjunction with the signaling theory that listed firms usu-ally pay cash dividends as an indication of possessing positivefuture prospects, we expect that more innovated listed firms(with more effective patents) would have a higher propensityof distributing profits, and also higher cash dividend payoutrates. Consequently, our research hypotheses are:

H1: All else being equal, listed firms with more effectivepatents are more likely to pay cash dividends;

H2: All else being equal, listed firms with more effectivepatents pay higher cash dividends.

III. RESEARCH DESIGNThe data on corporate patents, dividend payouts and othercontrol variables are obtained from the China Stock Marketsand Accounting Research (CSMAR) database. The sampleperiod is from 2007 to 2017, as the data on corporate patentsbecome relatively complete in the recent years. We excludefinancial firms to make our sample comparable with otherstudies. The initial sample includes 12566 observations ofcorporate patents. After matching with the data on dividendpayouts and other firm characteristics, the sample size isreduced to 9093. We further winsorize variables definedas ratios, namely CPS, C/A, PATENT, STATE, GRWOTH,E/A, V/A, EXE_SHARE, CASH, and LEV, at the upper andlower 1% levels. The final sample contains 8207 observa-tions. A definition for these abbreviations is provided in theAppendix.

We employ logistic regressions to examine the effect ofcorporate patents on the likelihood of paying cash dividends.Dependent variable, namely CD, takes the value of 1 ifa firm pays cash dividends in year t, and takes the valueof 0 otherwise. PATENT, which is the key independent vari-able, is defined as the number of effective patents scaledby the book value of total assets (total assets are in mil-lions of Chinese RMB). Following Fama and French [10],GROWTH, V/A, and E/A are included in the model as thebasic determinants of the dividend payments. GROWTH isthe growth rate of total assets. V/A is the ratio of the aggregatemarket value to the aggregate book value of total assets.E/A is the ratio of earnings before interest to total assets.To control for the effect of corporate governance on dividendpayout policy, we include STATE and EXE_SHARE in ourregression analyses. STATE is measured by the percentage ofshares held by government (including its agencies) or parentstate-owned enterprises [35]. EXE_SHARE, which is thepercentage of shares held by top executives, controls for theeffect of managerial ownership on alleviating principal-agentconflicts [15], [35].

Other control variables are CASH, LEV, and SIZE [13],[26], [35]. CASH is net cash flow from operating activitiesscaled by the book value of assets. LEV is the proxy forfinancial leverage and is defined as the ratio of total liabilityto total assets. SIZE is the natural logarithm of total assets.Moreover, since the number of listed firm’s patents maydiffer across industries, we include industry fixed effect inour regression analyses. Year dummies are also included to

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TABLE 1. Descriptive statistics.

TABLE 2. Pearson correlations.

control for changes in macroeconomic environment commonto all listed firms over the sample period. We run the logisticregression below:

CDit = α0 + α1PATENTit + α2STATEit + α3GROWTHit

+α4EAit + α5VAit + α6EXE_SHAREit

+α7CASHit + α8LEVit +α9 SIZEit +α10 CDit−1

+INDUSTRY FIXED EFFECTS

+YEAR FIXED EFFECTS+ εit (1)

It is noteworthy that some listed firms may continuously paydividends to their shareholders. A firm’s past dividend patternmay affect its future payout policy. Accordingly, the variableCD is auto-correlated. Therefore, we include the lagged value

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TABLE 3. Effects of corporate patents on the likelihood of paying dividends.

of CD (CDit−1) in the regression to control for the effect oflisted firms’ past dividend patterns in another model.

Furthermore, we use patent change (i.e., the differencein the number of effective patents between current and pre-vious year) as the independent variable in another model.This also helps us find out whether a firm is more likelyto pay cash dividends if acquiring more patents in the cur-rent year than in the previous year. The model is shownbelow.

CDit = α0 + α11PATENTit + α2STATEit + α3GROWTHit


+α7CASHit + α8LEVit +α9 SIZEit



Following Firth et al. [11], we use two variables to measurelisted firms’ dividend payout ratios: C/A and CPS. C/A iscash dividend per share over the book value of assets per sharein a year. CPS is cash dividend per share. The OLS regressionmodels are shown below.

C/Ait = α0 + α1PATENTit + α2STATEit + α3GROWTHit





CPSit = α0 + α1PATENTit + α2STATEit + α3GROWTHit





Moreover, we employ another logistic model to confirm therobustness of empirical results derived from models 3 and 4.The dependent variable is CPSDM, which takes the value of 1if a firm’s CPS ratio increases from year t-1 to t, and takesthe value of 0 otherwise. The main explanatory variable is1PATENT, which is the change in the number of patents fromyear t-1 to t scaled by the book value of assets. The logisticregression is shown below.

CPSDMit = α0 + α11PATENTit + α21STATEit

+α31GROWTHit + α41EAit + α51VAit

+α61EXE_SHAREit + α71CASHit

+α81LEVit + α91SIZEit



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TABLE 4. Effects of corporate patent on cash dividend payout ratios.

IV. EMPIRICAL RESULTSTable 1 shows the descriptive statistics of all variables usedin this study. Among 8207 firm-year observations, 73.6% (or6040) have cash dividend payments. The average C/A (cashdividend per share over total assets per share) ratio is 0.016,and the average CPS (cash dividend per share) is 0.127. Theminimum value of PATENT is 0, which suggests that somelisted firms do not have any patent during the sample period.

Table 2 reports the results of correlations among vari-ables used in regression analyses. The correlations betweenall pairs of independent variables are below 0.5. As such,the correlations are not high enough to cause multicollinear-ity.We further perform aVIF test. All VIF factors are below 2,which confirms our argument that the correlations are nothigh enough to cause multicollinearity. Due to size limit,the result is not reported, but available upon request.

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TABLE 5. Results of system GMM estimators in dynamic panel data models.

Table 3 reports the empirical results of logistic regressionstesting the propensity to pay. Dependent variable (CD) isa dummy variable that takes the value of 1 if a firm payscash dividends in year t, and takes the value of 0 otherwise.In Model 1, the coefficient on PATENT is significantly posi-tive at the 1% level. This indicates that listed firms are morelikely to pay cash dividends when holding more patents onhand. In Model 2, we add one more control variable, whichis the lagged value of CD (CDit−1), in logistic regression.This is because some listed firms may consecutively pay cashdividends to their shareholders. Hence, their past dividendpatterns may affect future payout policy.

As shown in Table 3, although the coefficient on PATENTdecreases from 5.149 to 3.682, it is still significantly pos-itive at the 1% level. In Model 3, we use patent change(1PATENT) as the key independent variable. The coefficienton 1PATENT is also significantly positive at the 1% level.This suggests that listed firms are more likely to pay cashdividends if the number of their patents increases from year t-1 to t. The results of control variables are basically consistentwith the literature. More profitable firms are more likelyto pay cash dividends, but highly leveraged firms are lesslikely to pay cash dividends [15], [19]. The coefficients onEXESHARE are significantly positive across all regressions,

which indicate that managerial holdings are an effectivemechanism to mitigate agency problem [2], [21].

Table 4 reports the results of Equations 3, 4, and 5. Panel Ashows the regression results of Equations 3 and 4. When CPSis used as the dependent variable (Model 1), the coefficient onPATENT is significantly positive at the 1% level. In Model2, PATENT is still significantly associated with C/A at the10% level. Therefore, listed firms with more patents tend todistribute more cash dividends to their shareholders. Panel Breports the result of logistic regression (Equation 5). Depen-dent variable is a dummy variable that takes the value of 1 ifa firm’s dividend per share increases from year t-1 to t, andtakes the value of 0 otherwise. The coefficient on1PATENT(patent change) is significantly positive at the 5% level. Thisindicates that listed firms are likely to increase their CPSratios when their patents increase from year t-1 to t.

V. ROBUSTNESS CHECKA. ENDOGENEITYIt is noteworthy that listed firms with high dividend payoutsare usually more profitable, and hence, have more resourcesto innovate. As such, there may be a possibility of reversecausality between corporate innovation and dividend pay-outs. To control for reverse causality, we employ system

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TABLE 6. Propensity-matched technique.

generalized method of moments (GMM) techniques devel-oped by Arellano and Bover [36] and Blundell and Bond[37] in dynamic panel data. The system GMM in dynamicpanel data can alleviate the possible positive bias in difference

GMM due to the persistence of lagged dependent variablesas instruments [37]. The results of system GMM estimatorsin dynamic panel data models are reported in Table 5. TheSargan tests (p-value > 0.1) do not suggest rejection of the

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TABLE 7. Regressions by firm size.

overidentifying restrictions at conventional levels for eitherspecification estimated. Furthermore, there is evidence offirst order serial correlation in the residuals, and the AR(2)test statistics (p-value> 0.1) reveals absence of second-orderserial correlation in the first-differenced errors. Therefore, theinstruments used in the system GMM model are valid. Thecoefficients on PATENT are still significantly positive wheneither C/A or CPS is used as dependent variable. Accordingly,our empirical results are confirmed by the system GMMapproach.

Propensity-score matching (PSM) is another commonlyused estimation procedure that addresses endogeneity andselection bias by matching sample firms with control firmshaving similar characteristics according to a function ofcovariates. Following Sun et al. [38], we employ the nearestneighbor (NN), Radius and Kernel techniques to perform thePSM tests. The basic approach to PSM is to first model thedeterminants of variation in PATENT among firms.We divideour sample into two groups based on the yearly medianlevel of PATENT. The group with above-median PATENT isused as the treated group, and the group with below-medianPATENT is used as the control group.We include the holdingsof institutional investors and the log value of firm age thatmay explain the variation in PATENT.

As reported in Panel A of Table 6, the p-values for thet-test indicate that the matching algorithm was successful inachieving balance for all covariates. More specifically, 8 of

the 10 t-tests are statistically insignificant between the treatedand the control sub-groups in all three PSM techniques. PanelB reports the PSM regression results for the NN (columns1 to 3), Radius (columns 4 to 6), and Kernel (columns 7 to9) methods. The coefficients on PATENT are significantlypositive across all regressions. Accordingly, the PSM analysisconfirms the positive association between corporate innova-tion and cash dividend payouts.

B. FIRM SIZELiterature suggests that large firms usually have more stableprofits and market shares, but lack growth opportunities.Those firms tend to distribute more cash dividends to theirshareholders [10]. On the contrary, small-sized listed firmsnormally have more growth potential, and hence, prefer toretain their earnings. As such, we further split the entiresample into three subsamples based on the book value of totalassets: large size firms, medium size firms, and small sizefirms. Table 7 presents the results of regression analyses byfirm size. Panel A reports the results of logistic regressionstesting the propensity to pay cash dividends. The coefficientson PATENT are significantly positive at the 1% level forlarge and small size firms. Panel B reports the results of OLSregressions testing the effect of patents on payout rates. Thecoefficients on PATENT are significantly positive at either the5% or 10% level across all regressions.

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TABLE 8. Definition of variables.

As a further robustness test, we use firm fixed effectsto replace industry fixed effects, and include random effectinstead of fixed effect in our regression analyses. The resultsremain unchanged. Due to the space limit, those results arenot reported, but are available upon requested.

VI. CONCLUSIONExisting studies suggest that corporate innovation helps listedfirms gain market shares and boost market value. Such effectmay enhance the confidence of managers in future corporateperformance. In conjunction with the signaling effect of cashdividends, we argue that managers from innovative firmswould have more incentive to pay cash dividends. Using thenumber of effective patents to measure innovation, we findthat corporate innovation increases the propensity of payingcash dividends. Moreover, the number of effective patentsis also positively associated with the level of cash dividendpayment. The empirical findings are robust to different modelspecifications and to different subsamples based on firm size.Our findings are also in line with the dividend signalingtheory.

China is a civil law country with relatively weakinvestor protection. Since the establishment of domestic stock

exchanges, controlling shareholders’ embezzlement has beenargued as a major problem of Chinese stock markets [39],[40]. Many listed firms prefer to keep profits as retainedearnings and do not pay cash dividends. On average, the cashdividend payout rates of Chinese listed companies are amongthe lowest in the world from 1990 to 2004 [27]. As such,China Securities Regulatory Commission (CSRC) has beenspending a great effort on encouraging listed firms to paycash dividends. In 2006, CSRC required listed firms applyingfor equity refinancing to pay cash dividends of no less than20% of the distributable profit in the previous three years.In 2013, the CSRC even announced that it would officiallyinterview and pay special attention to non-dividend-payinglisted firms. Therefore, the policy implication of this studyis that Chinese regulatory bodies may keep stimulate theinnovative behaviors by listed firms, as corporate innovationcould not only boost domestic economic growth but alsocause an increase in cash dividend payouts of listed firms.

This study further sheds light on the role of corporate inno-vation in dividend payout policy, which is a major corporatebehavior. Such effect has rarely been examined by exist-ing studies, especially in emerging economies. This studyalso adds new evidence to the dividend signaling theory.

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Future studies can contribute to the literature on the effectof corporate innovation on stock dividend payment and sharerepurchase, which are also quite popular in China and otheremerging markets.

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LIPING LIAO received the Ph.D. degree in man-agement science from the Guangdong Universityof Technology, China. She is currently a Professorof management with Guangdong Polytechnic Nor-mal University, China. She has published researcharticles in academic journals. Her research inter-ests include systems engineering, innovation tech-nologies, cyberspace security technology, andso on.

KWOK FAI GEOFFREY TSO received the Ph.D.degree in biostatistics from the University ofToronto. His research has appeared in Com-putational Statistics & Data Analysis, Energy,Social Indicators Research, the Journal of theAssociation for Information Systems, the Journalof Applied Statistics, Communications in Statis-tics - Simulation and Computation, and others.His research interests include market research,economic indexes, energy research, businessintelligence, and deep networks.

JINGJING YANG received the Ph.D. degree infinance from Massey University, New Zealand.He is currently a Professor of finance with theGuangdong University of Foreign Studies, China.He has published research articles in academicjournals. His research interests include corporategovernance and corporate finance, and so on.

61100 VOLUME 9, 2021

http://dx.doi.org/10.1108/IJMF-03-2019-0114

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Corporate Innovation and Dividend Payout Policy: Evidence