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Nonnegotiable shares, controlling shareholders, and dividend payments in China

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  • Huang, Juan Juan
  • Shen, Yifeng
  • Sun, Qian
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    Abstract

    China has some unique institutional features. For example, the shares of listed firms are segmented into negotiable and nonnegotiable ones. The controlling shareholders, usually connected to the government, hold nonnegotiable shares. We examine how these institutional features affected cash dividend payments in China during the period 1994-2006. We find that dividend payments are positively associated with the proportion of nonnegotiable shares in a firm and the proportion of nonnegotiable shares held by the controlling shareholder; moreover, the 2001 China Securities Regulatory Commission stipulation requiring cash dividend payments does not benefit negotiable shareholders. However, we also find that dividend payments are downside flexible, and controlling shareholders cannot force firms to pay or to pay more dividends when firms' earnings decline significantly. The conventional factors, especially profitability or the capability to pay, still play an important role in determining the dividend policy. The propensity to pay and the payout ratio in China are not high compared to those of other countries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 17 (2011)
    Issue (Month): 1 (February)
    Pages: 122-133

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    Handle: RePEc:eee:corfin:v:17:y:2011:i:1:p:122-133

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    Web page: http://www.elsevier.com/locate/jcorpfin

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    Keywords: Cash dividends Nonnegotiable shares Controlling shareholders Downside flexibility;

    References

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    Cited by:
    1. Jiang, Zhan & Kim, Kenneth A., 2013. "Financial management in China," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 125-133.
    2. Dong, Liping & Uchida, Konari & Hou, Xiaohong, 2014. "Block trade targets in China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 188-201.
    3. Cheung, William & Lam, Keith S.K. & Tam, Lewis H.K., 2012. "Blockholding and market reactions to equity offerings in China," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 459-482.
    4. Chin-Sheng Huang & Chun-Fan You, 2014. "Dividend-Yield Trading Strategies: Evidence from the Chinese Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 382-399.
    5. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2014. "Controlling shareholder, split-share structure reform and cash dividend payments in China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 339-357.

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