State Controlling Shareholders and Payout Policy

63 Pages Posted: 11 Jun 2019 Last revised: 2 Feb 2020

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: Feb 2, 2020

Abstract

We study the role of state controlling shareholders in corporate payout policy. We exploit as an exogenous event the State Capital Operation Program in China under which parent central state-owned enterprises (parent CSOEs) are required to partially contribute their income to a fiscal fund. We find that, upon the inception of the program, listed central state-owned enterprises (listed CSOEs) controlled by these parent CSOEs experience a significant reduction in dividend payouts. The reduction in dividend payouts is concurrent with an increase in intra-group capital flows: listed CSOEs’ loans to group peers and their commercial purchases from group peers. We conclude by showing that the payout reduction tends to be explained by parent CSOE managers’ career concerns and that such reduction hurts minority shareholders’ interests, manifested in a loss of firm value.

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 Shareholders and Payout Policy (Feb 2, 2020). 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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