Topic:  Ownership Structure, Control Chains, and Cash Dividend Policy: Evidence from China

Presenter：Chao Chen, Professor，California State University

Time:  December 14, 2007（Friday）3：00—4：30 PM    

Venue: Room 513, Jiageng Bld 2

Chair： Yujun Wu, assistant professor in finance, IFAS

Abstract：

China’s corporate sector is unique in many aspects. For example, most listed firms in the Shanghai and Shenzhen stock exchanges are carve-outs of stateowned enterprises in China, stock ownership is highly concentrated, and government bodies own a majority or controlling ownership of many publicly listed companies. Furthermore, a high percentage of the stocks of listed firms is not fully circulated in the Chinese stock market, but held by state-owned enterprises as non-tradable shares. This paper investigates the cash dividend policy of listed companies in China from the perspective of ownership structures and control chains that have evolved in China’s unique institutional and legal setting. The level of cash dividends per share (DPS) is higher for companies ultimately controlled by non-state entities than for those

controlled by the state, in particular, local government controlled firms. Local government controlled firms are more likely to pay less cash dividends because they have a greater incentive than central government controlled firms to support companies that they control. For companies ultimately controlled by a non-state entity, the longer the control chain, the lower the probability of cash dividend, and the lower the DPS and payout ratio. However, increases in the control chain have a less negative impact on dividends for state-controlled firms than for firms controlled by a non-state entity. The cash flow right is positively related to the probability of a cash dividend distribution, the level of the cash dividends, and the cash dividend payout ratio. The greater the divergence of the cash flow rights and the control rights, the higher the incentive for those with dominant control rights to seek rents from

shareholders with minority control rights. In China as the ratio of control rights to cash flow rights increases, the greater divergence leads to firms paying more dividends.

Presenter Introduction：

Chao Chen is Countrywide Financial Endowed Professor of Finance at College of Business and Economics, California State University, Northridge. Dr. Chao Chen is the Founding Director of the Center for China Finance and Business Research (CCFBR). He received his Ph.D. in Finance from the University of Maryland at College Park in 1988. His research interests include corporate finance (capital strcuture, IPO, dividend policy, corporate restructuring, and corporate governance), investments (asset pricing and asset management), and derivatives (options, futures, and risk management).

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