Social Trust and Dividend Payouts: Evidence from China

57 Pages Posted: 30 Nov 2021

See all articles by Wei Qin

Wei Qin

Guangxi University

jenny jenny

Central University of Finance and Economics

Quanxi Liang

Guangxi University

Meiting Lu

Macquarie University - Faculty of Business and Economics; Macquarie University, Macquarie Business School

Yaowen Shan

University of Technology Sydney; Financial Research Network (FIRN)

Abstract

Social trust helps to reduce information asymmetry and agency conflicts between insiders and investors, and thus alleviates the pressure on firms to pay cash dividends. Consistent with this view, we find that Chinese firms in low-trust regions make higher dividend payouts than those in high-trust regions. The negative effect of trust is more pronounced in firms with lower information transparency and weaker corporate governance. We additionally find a lower market reaction to dividend announcements for firms in high-trust areas, and moreover that the role of social trust is more important for firms that are lacking in political connections and located in areas with weak institutions. Our results are robust to alternative measures of social trust and dividends and the use of the instrumental variable approach to alleviate endogeneity concerns. Overall, the findings highlight the important role of social trust in corporate governance and corporate dividend policy, along with its ability to substitute for formal institutions.

Keywords: Social trust, dividend policy, information asymmetry, agency conflicts

Suggested Citation

Qin, Wei and jenny, jenny and Liang, Quanxi and Lu, Meiting and Shan, Yaowen, Social Trust and Dividend Payouts: Evidence from China. Available at SSRN: https://ssrn.com/abstract=3966930 or http://dx.doi.org/10.2139/ssrn.3966930

Wei Qin

Guangxi University ( email )

East Daxue Road #100
Nanning, 530004
China

Jenny Jenny

Central University of Finance and Economics ( email )

Quanxi Liang

Guangxi University ( email )

East Daxue Road #100
Nanning, Guangxi 530004
China

Meiting Lu (Contact Author)

Macquarie University - Faculty of Business and Economics ( email )

Sydney, New South Wales 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Yaowen Shan

University of Technology Sydney ( email )

PO Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://profiles.uts.edu.au/Yaowen.Shan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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