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The pre-IPO dividend and the cost of equity capital: Evidence from China

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  • Gao, He
  • Lu, Junwei
  • Yang, Laifeng
  • Liu, Zhangxin (Frank)

Abstract

We examine how pre-IPO dividend payments affect the cost of equity capital using data from China’s A-share market (2010–2022). Firms distributing large pre-IPO dividends face higher post-listing equity costs due to investor concerns over agency risks and cash flow constraints. This effect is stronger for non-SOEs, growth-stage firms, and technology-intensive enterprises. Institutional factors, such as regional market development and economic policy uncertainty, further condition this relationship. Our findings, robust to alternative measures and endogeneity checks, highlight the long-term impact of pre-IPO financial decisions and underscore the role of regulatory oversight in shaping investor expectations.

Suggested Citation

  • Gao, He & Lu, Junwei & Yang, Laifeng & Liu, Zhangxin (Frank), 2025. "The pre-IPO dividend and the cost of equity capital: Evidence from China," Finance Research Letters, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finlet:v:84:y:2025:i:c:s1544612325010530
    DOI: 10.1016/j.frl.2025.107795
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    References listed on IDEAS

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    1. Sun, Qian & Gao, Shenghao & Wu, Di & Chan, Kam C. & Cheng, Xiaoke, 2024. "Pre-IPO dividend puzzle: Reaction to IPO underpricing or post-IPO lockup? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PA).
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    1. 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).

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