State Controlling Shareholder and Expropriation

56 Pages Posted: 11 Jun 2019

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Hang Liu

Dongbei University of Finance and Economics

Chenkai Ni

Fudan University

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: May 31, 2019

Abstract

We examine how state objectives affect state-owned enterprises (SOEs)’ payout policies. Our identification strategy relies on a series of reforms that mandate parent central state-owned enterprises (CSOEs) in China to contribute a proportion of their consolidated net income to the state for the formation of a fiscal fund initiated in 2007. We show that, upon the inception of these reforms, the listed CSOEs controlled by parent CSOEs experience a significant reduction in dividend payouts. Moreover, these dividend reductions are concurrent with an increase in both within-group borrowings and related party transactions, i.e., two primary channels of reallocating resources within the group. We conclude by showing that the listed CSOEs’ dividend policies tend to be explained by their group managers’ career concerns and that such policies eventually hurt the minority shareholders’ interests, manifested in a postreform reduction in firm valuation.

Keywords: state ownership, minority shareholders, dividend, expropriation, business group

JEL Classification: G30, G28, G35, P1

Suggested Citation

Lin, Chen and Liu, Hang and Ni, Chenkai and Zhang, Bohui, State Controlling Shareholder and Expropriation (May 31, 2019). Available at SSRN: https://ssrn.com/abstract=3396813 or http://dx.doi.org/10.2139/ssrn.3396813

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hang Liu

Dongbei University of Finance and Economics ( email )

Dalian, 116025
China

Chenkai Ni (Contact Author)

Fudan University ( email )

Guoshun Road 670
Yangpu
Shanghai, Shanghai 200433
China

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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