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Mandatory dividend policy and external pay gap: Evidence from state-owned business groups in China

Author

Listed:
  • Wu, Wenzhi
  • Gong, Xiaofeng
  • Yang, Liu
  • Chen, Nengjun

Abstract

This study examines the impact of mandatory dividend policies on the external pay gap within China's Central State-Owned Enterprises (CSOEs). Using the establishment of China's State-owned Capital Operating Budget System as an exogenous shock, we find that when parent CSOEs are mandated to distribute dividends to the state, their affiliated listed subsidiaries significantly reduce the external pay gap. We identify and empirically validate a novel transmission channel where profit remittance compels subsidiaries to increase dividend payouts, thereby tightening their cash flow constraints and ultimately compressing employee wages. Moreover, the policy's effectiveness strengthens under strong parent control over subsidiaries, among particularly for rank-and-file employees rather than executives.

Suggested Citation

  • Wu, Wenzhi & Gong, Xiaofeng & Yang, Liu & Chen, Nengjun, 2026. "Mandatory dividend policy and external pay gap: Evidence from state-owned business groups in China," Economic Analysis and Policy, Elsevier, vol. 91(C), pages 587-602.
    • Handle: RePEc:eee:ecanpo:v:91:y:2026:i:c:p:587-602
    DOI: 10.1016/j.eap.2026.03.025
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    Keywords

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    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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