Cash dividend policy, corporate pyramids, and ownership structure: Evidence from China

Ownership Structure and Dividend Policy: Evidence from China

“…First, this paper helps shed additional light on dividend policy of listed firms in China, where the research on payout policy is still unexplored. Second, the evidence from this paper showing the positive impact of government ownership on dividend policies of Chinese firms helps corroborate the findings of prior work (i.e., Chen et al, 2009;Bradford et al, 2013). Third, this paper documents an interesting issue regarding corporate governance of Chinese listed firms, i.e., the institutional ownership has a negative impact on dividend policy of Chinese firms, suggesting that large institutional investors expropriate minority shareholders.…”

“…However, they suggest that the government pays high dividends to tunnel corporate resources. Similarly, Bradford et al (2013) find that the dividends paid by the state-controlled firms are higher than those paid by the privately-controlled firms. However, they argue that the tunneling motive is not the key factor affecting dividend policy in China.…”

“…Chen et al (2009) show that dividend payouts tend to be large when companies are controlled by the government but these dividend payments might be used for tunneling rather than for just paying out free cash flows. Likewise, Bradford et al (2013) also find that, compared with the privately controlled firms, the state-controlled firms pay higher dividends. However, they argue that higher dividends by state-controlled firms are not driven by the tunneling motive but rather by the favorable accessibility to external capital.…”

“…In China, however, it is difficult for shareholders, especially minority ones, to enforce managers to pay dividends to meet their demand. Indeed, it is quite clear that the shareholder who has the most influential power on corporate dividend policies in China is the government bodies, who are controlling shareholders in most listed firms in the Shanghai and Shenzhen stock exchanges (Bradford et al, 2013). Chen et al (2009) find that dividend payouts increase as the government owns more shares.…”

“…Following Mitton (2004) and Bradford et al (2013), I use dividend payout ratio (DPR) as a measure for dividend policy. DPR is the cash dividend per share divided by earnings per share.…”