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Dividends and tunneling: evidence from family firms in China

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  • Feng Xu'nan

Abstract

Purpose–The purpose of this paper is to empirically analyze the motive of family-controlled firms to pay cash dividends in China. Design/methodology/approach–Using some econometrical models, the paper designs and conducts a series of empirical research on cash dividends behavior, thus acquiring credible empirical data. Findings–Using a sample of 204 family firms, the motive of family-controlled firms to pay cash dividends was investigated. Dividend ratio was found to decrease with the separation of ultimate ownership and control right; this may reflect the tunneling motive of the family owners. Different from others, it was also found that high-growth firms pay more dividends and that the family doing so may want to build a high reputation for the friendly treatment of minority investors for future financing. Practical implications–The paper discusses investor protection matters in China. Originality/value–The paper' findings provide policy implications for corporate governance reform and capital market development in China.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal China Finance Review International.

Volume (Year): 1 (2011)
Issue (Month): 2 (April)
Pages: 152-167

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Handle: RePEc:eme:cfripp:v:1:y:2011:i:2:p:152-167

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Related research

Keywords: China; Dividends; Family firms; Investors;

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References

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  1. Cull, Robert & Xu, Lixin Colin, 2003. "Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 533-559, August.
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  8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Agency Problems and Dividend Policies Around the World," Harvard Institute of Economic Research Working Papers 1839, Harvard - Institute of Economic Research.
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  10. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-33, March.
  11. Heitor V. Almeida & Daniel Wolfenzon, 2006. "A Theory of Pyramidal Ownership and Family Business Groups," Journal of Finance, American Finance Association, vol. 61(6), pages 2637-2680, December.
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  13. Malcolm Baker & Jeffrey Wurgler, 2003. "A Catering Theory of Dividends," NBER Working Papers 9542, National Bureau of Economic Research, Inc.
  14. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc.
  15. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
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