State Controlling Shareholder and Expropriation
56 Pages Posted: 11 Jun 2019
Date Written: May 31, 2019
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: Suggested Citation