Using a comprehensive dataset for Chinese listed companies from 2009 to 2021, we find that online media is negatively associated with cash dividend level, and the proportion of positive news has a negative moderating effect on this relationship. Our results support the "information intermediary" effect and exclude the "external governance" and "market pressure" effects. We further propose that online media weakens the positive relationship between cash dividends and past earnings (rather than the future), indicating that cash dividends contain signals of improvement in past earnings and are replaced by online news. We also find that only firms with more positive news pay dividends that have signaling effects, and there is a synergistic effect between positive news and dividend signal. Additional results show that the effect of online media on dividend policy is more pronounced than traditional media, which has almost no influence. Our main conclusions remain valid after addressing potential endogeneity issues and conducting various robustness tests.

The deviation of control right and cash flow right is a common problem of corporate governance in East Asian companies.With Taiwan's listed companies as samples, this paper discusses whether the degree of deviation of control right and cash flow right will affect the company’s earnings distribution policy. The results reveal that, regardless of using stock right or the number of directors to measure the control right, companies of higher degree of deviation of control right and cash flow right have higher proportions of employee bonuses against the shareholder dividends, In this case, the company is more biased in the care of the employees at the expense of the minority shareholders. The company is especially likely to exploit the minority shareholders by controlling the board of directors and paying cash dividends to employees. As investors believe that the controlling shareholders of companies with high degree deviation of control right and cash flow right, and high proportion of employee bonuses are intended to exploit the minority shareholders, such companies have significantly lower declared earnings distribution remuneration compared with companies with low degree of deviation and low employee bonuses.

The Chinese market is characterized by state-controlled and closely held firms as well as significant differences in economic development and legal structures at the provincial level and corporate regulations that require firms seeking external financing to show a history of dividend payment. Using a sample of listed Chinese firms, we investigate the firm’s choice of cash or stock dividends and market reactions to the announcement of these dividend choices. We find that profitable, low leverage, high cash holding, stronger shareholder protection firms, and those firms with state ownership prior to listing and undertaking subsequent equity offerings are more likely to pay dividends and cash dividends, in particular. In addition, we find that growing firms with high levels of retained earnings and investing more in fixed assets pay stock dividends. Firms appear to cater to investor demands in setting dividend policy; hence firms with a large proportion of non-tradable shares are more likely to pay cash dividends. Consistent with the use of stock dividends to attract the attention of analysts, we find that the announcement of a stock dividend initiation is associated with significant positive market reactions and increased analyst following.

The Chinese market is characterized by state-controlled and closely held firms as well as significant differences in economic development and legal structures at the provincial level and corporate regulations that require firms seeking external financing to show a history of dividend payment. Using a sample of listed Chinese firms, we investigate the likelihood of paying dividends, different forms of dividends and market reactions to various dividend announcements. We find that profitable, low leverage, high cash holding, stronger shareholder protection firms, and those firms with state ownership prior to listing and undertaking subsequent equity offerings are more likely to pay dividends and cash dividends, in particular. Firms appear to cater to investor demands in setting dividend policy; hence firms with a large proportion of non-tradable shares are more likely to pay cash dividends. Consistent with the use of stock dividends to attract the attention of analysts, we also find that growing firms with high levels of retained earnings and greater investment in fixed assets pay stock dividends and these firms’ dividend announcements are associated with significant positive market reactions and increased analyst following.

Manuscript Type: Empirical Research Question/Issue: This study intends to solve the disputes between the free cash flow hypothesis and the tunneling hypothesis in explaining the role of cash dividends on asset expropriation of the controlling shareholders in Chinese listed firms, by investigating the values of cash holdings and cash dividends between firms with high and low ownership control. Research Findings/Insights: The results show that investors value more the cash dividends of firms with high ownership control than those of firms with low ownership control, and value more the cash holdings of firms with low ownership control than those of firms with high ownership control, more consistent with the free cash flow hypothesis rather than the tunneling hypothesis. Theoretical/Academic Implications: This study contributes to the literature of agency theory and international corporate governance by solving the disputes regarding the role of cash dividends in asset expropriation of controlling shareholders in Chinese listed firms. This study also contributes to the literature of cash holdings by showing that the most essential condition for these firms to hold high level of cash holdings is the quality of investor protection. This provides an example of the applicability of the Anglo-Saxon theory to emerging markets. Practitioner/Policy Implications: Even though the evidence does not support the tunneling hypothesis of cash dividends, it still suggests that investors are concerned with high cash payouts, which could thus lower firm value. Thus, changing corporate ownership structure and improving investor protection are necessary to deepen the development of financial markets.

We examine the effects of government ownership on the change in valuation and the uses of proceeds of firms after they raise equity funds – the time when the agency problems of free cash flows are larger. We find that investors generally react more negatively to an equity offering decision by a company whose government ownership is higher. Firms generally increase cash dividend payments after offering equity, and firms with extremely high government ownership increase cash dividends more than other firms do. Further analysis shows that investors react more negatively to an offering decision if they expect the issuer to increase cash dividends post-offering. Our study suggests agency problems exist in equity offerings in China, and firms tunnel resources by offering shares to the public followed by an increase in cash dividends.

Comprehensive data on corporate announcements of Chinese firms allows us to examine the preference for, and determinants of, cash and stock dividends. The results indicate that Chinese public investors prefer stock dividends over cash dividends, which are preferred by large state and legal person shareholders generally. Stock dividends, which do not require an explicit cash outflow from a firm, are found to be positively related to higher earnings, supporting the signalling hypothesis of dividend policy. In an imperfect market, these results have some implications for government regulation of financial markets.

It is widely accepted that paying cash dividend might mitigate agency problem between majority shareholder and minority shareholders. Some common law countries use mandatory cash dividend policy to protect minority shareholders. We provide opposite evidence in this paper. First, we find that in China’s stock market, firms with intermediate or high shareholding concentration have higher incentive to pay cash dividend. As controlling shareholders in China hold non-negotiable shares, we argue that this phenomenon is associated with non-negotiable shareholders’ incentive to retrieve cash from the firm. Second, non-negotiable shareholders generally give up subscription right in rights offering. Furthermore, firms with intermediate or high shareholding concentration increase dividend payment soon after rights offering. Giving up subscription right and using receipts from rights offering to pay cash dividend together mean that non-negotiable shareholders in firms with intermediate or high shareholding concentration sell a proportion of the shares they hold to negotiable shareholders by paying cash dividend. The average selling price is about 3 times higher than that in private negotiation. Market reacts negatively to cash dividend announcement of firms with intermediate or high shareholding concentration. Our findings show that dividend might be used as a vehicle of tunneling.