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Do dividends signal information about capital allocation: Evidence from intra-group loans?

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  • Cheng, Liubing
  • Chen, Yanyan
  • Zhu, Bing

Abstract

This study examines whether dividends signal information about controlling shareholders’ capital allocation decisions within private business groups. We find that the dividend gap between a firm and its group peers positively predicts future intra-group loans. This relationship strengthens when the controller holds a smaller equity stake, faces higher capital demands, or maintains weaker ties with the firm. Furthermore, firms with larger dividend gaps experience higher future bad accounts on intra-group loans, and firms with larger intra-group loans are more likely to be sold. Collectively, these findings demonstrate that dividend payouts and intra-group loans form a synergistic pathway for tunneling, challenging the traditional "free cash flow" theory. To prevent dividend payments from being used to finance controllers' private benefits, regulatory policies should require listed companies to establish stable and sustainable dividend policies based on their financial conditions.

Suggested Citation

  • Cheng, Liubing & Chen, Yanyan & Zhu, Bing, 2026. "Do dividends signal information about capital allocation: Evidence from intra-group loans?," Research in International Business and Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:riibaf:v:87:y:2026:i:c:s0275531926001364
    DOI: 10.1016/j.ribaf.2026.103409
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    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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