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Cutting corners, cutting dividends: Evidence from reverse mergers in China

Author

Listed:
  • Gao, He
  • Lu, Junwei
  • Yang, Laifeng
  • Cheng, Zijian
  • Liu, Zhangxin (Frank)

Abstract

We examine how listing strategies shape dividend policies in China. Firms listed via reverse mergers (RMs) exhibit significantly lower probability and levels of cash dividend payments than those listed through initial public offerings (IPOs). Mechanism tests attribute this low-dividend tendency of RM firms to higher financing constraints, more severe agency problems, stronger performance pressure, and weaker market attention. Heterogeneity analysis shows that state ownership, intense industry competition, robust legal environments, and the participation of mature investors can mitigate these effects. Further analysis reveals that RM firms are also less likely to use stock dividends or share repurchases, though the gap with IPO firms narrows over time. Economic consequence tests indicate that dividend payouts by newly listed firms increase the cost of equity capital, with the negative signalling effect particularly pronounced for RM firms. Our findings offer fresh insights into the “dividend puzzle” in emerging markets undergoing institutional transition.

Suggested Citation

  • Gao, He & Lu, Junwei & Yang, Laifeng & Cheng, Zijian & Liu, Zhangxin (Frank), 2026. "Cutting corners, cutting dividends: Evidence from reverse mergers in China," Emerging Markets Review, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:ememar:v:70:y:2026:i:c:s1566014125001529
    DOI: 10.1016/j.ememar.2025.101403
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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