ownership structure, control chains, and cash dividend policy in china

8/2/2019 Ownership Structure, Control Chains, And Cash Dividend Policy in China

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Ownership Structure, Control Chains, and Cash Dividend Policy:

Evidence from China

William Bradford

University of Washington, Seattle

Chao Chen*

California State University, Northridge

Song Zhu

Tsinghua University, Beijing

Abstract: Chinas corporate sector is unique in many aspects. For example, most

listed firms in the Shanghai and Shenzhen stock exchanges are carve-outs of state-

owned 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 fromthe

perspective of ownership structures and control chains that have evolved in Chinas

unique institutional and legal setting. The level of cash dividends per share is higher

for companies ultimately controlled by non-state entities than for those controlled by

the state, in particular, local government controlled firms. Local governmentcontrolled firms are more likely to pay less cash dividends because they have a greater

incentive than central government controlled firms to support its listed companies.

For companies ultimately controlled by the state, the longer the control chain, the

higher the probability of cash dividends, the higher cash dividends per share and

higher payout ratio. The opposite holds for firms that are not controlled by the state.

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 control rights and the cash flow rights, the higher theincentive for those with dominant control rights to seek rents from shareholders with

minority control rights; in China the greater divergence leads to firms paying more

dividends.

Keywords: Ownership structure, Control chain, Cash dividends, Ultimate shareholder,


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Ownership Structures, Control Chains, and Cash Dividend Policy:

Evidence from China

1. Introduction

The governance and ownership structure in Chinas corporate sector differ

broadly from those in the U.S. and Europe (Lv and Wang, 1999; Yuan, 2001; Lee and

Xiao, 2003; Lv and Zhou, 2005). How do the differences affect dividend policy

among listed companies in China? Previous papers conclude that the existing theories

of dividend policy do not have much explanatory power for the dividend decisions of

firms in China (Lv and Wang, 1999; Lee and Xiao, 2003). This paper focuses on firms

in China, and seeks to answer the following questions: What are the incentives for

listed companies in China to distribute cash dividends? What determines the

probability of a cash dividend distribution, the level of cash dividends, and the payout

ratio of firms in China?

Chinas corporate sector is evolving from a unique institutional background. For

example, most listed firms in the Shanghai and Shenzhen stock exchanges are carve-

outs of state-owned enterprises in China, stock ownership is highly concentrated, and

government bodies hold a majority or controlling ownership in many publicly listed

companies. Furthermore, a large fraction of the stocks of listed firms are not fully

circulated in the Chinese stock market, but held by state-owned enterprises as non-

tradable shares. Investors and the market are unable to force the management, which

is usually appointed by the controlling shareholder, to make decisions in the best

interest of all shareholders.


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the identity of those who ultimately control the firm. Usually, the decision-making

rights of listed firms in China are in the hands of the controlling shareholders or

ultimate shareholders, rather than the management. We propose three hypotheses

about the cash dividend policy of listed companies in China: 1) the cash demand of

shareholders hypothesis; 2) the internal capital market hypothesis; and 3) the rent

seeking hypothesis.

The cash demand of shareholders hypothesis reflects that the capital supply

channels for companies controlled by non-state entities are inferior to those controlled

by the state (Xia and Fang, 2005; Brandt and Li, 2003). Ultimate shareholders of non-

state entities are more uncertain about the future regulatory changes than are ultimate

shareholders of state-controlled entities. That is, state-owned entities have more

impact on state regulatory changes than do non-state entities. This is particularly

important in China, which changes its securities laws through internal government

deliberations more than the public/legislative processes in the U.S. Shareholders of

non-state firms experience greater uncertainty, which translates into higher equity

opportunity costs and demand for cash nowdividends. This is magnified by state-

controlled firms obtaining debt capital more easily and at a lower cost than non-state

controlled firms. For these reasons, the cost of capital for non-state controlled

companies is higher than that of state controlled companies. Because of the cost of

funds held for investment, non-state controlled firms incur more surplus funds and

pressure to pay cash dividends. We find that the probability of cash dividend

distributions, the level of cash dividends per share, and the cash dividend payout ratio

are higher for listed companies ultimately controlled by non-state entities than for

those controlled by the state. This finding is consistent with the cash demand of

shareholder hypothesis.

Th i t l it l k t h th i t th t th f l th


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more of a finance channel using direct control rather than multi-layer control.

Therefore, they request listed companies to distribute more cash dividends to satisfy

their cash demand. Where the state has ultimate control, the longer the control chain,

the more severe is the agency problem. Fan and Wong (2005) suggest that a longer

control chain means an increase in the markets influence and less government

intervention. This leads to increases in the cost of capital, and the cash demand is

much greater. Controlling shareholders that are lower down the control chain require a

significant influx of cash from their listed companies to support their needs. We find

that the control chain is significantly negatively related to the probability of cash

dividend distributions, the level of cash dividends per share, and the payout ratio.

Therefore, for state-controlled listed companies, a longer control chain results in a

higher probability of cash dividend distributions, a higher level of cash dividends per

share, and a higher payout ratio. This result is consistent with our internal capital

market hypothesis.

The rent seeking hypothesis suggests that the incentive to seek rent from other

shareholders, especially the minority shareholders in China, should be positively

related to the divergence of control right and cash flow right (La Porta et al., 1999;

Claessens et al., 2000; Fan and Wong, 2002). The higher the divergence, the stronger

the incentive to seek rent from minority shareholders, making the listed firm more

likely to distribute cash dividends. The rent seeking hypothesis implies a dividend

policy that is on the surface counter to the concept that payment of dividends reduces

potential agency costs (Jensen, 1986). The controlling SOE directs the listed firm to

do a rights offering in which the parent SOE, which holds non-tradable shares, does

not subscribe. The firm then uses the proceeds of the rights offering to pay dividends.

This is equivalent to the SOE selling a portion of its non-tradable shares to other

h h ld L d Xi (2004) fi d f fi th t d t k thi t t th


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positive related to the probability of a cash dividend distribution, the level of the cash

dividends, and the cash dividend payout ratio. Furthermore, the greater the deviation

of the control right over the cash flow right, the higher the incentive to seek rent from

minority shareholders, thus the higher probability of a cash dividend distribution, the

higher the level of the cash dividends per share, and the higher the payout ratio. This

evidence is consistent with our rent seeking hypothesis.

We also find that the likelihood of listed companies to distribute cash dividends in

the prior year is positively associated with the probability that they distribute cash

dividends in the next year; and cash dividends per share and the payout ratio in the

prior year are consistent with those in the next year. Our results show that the

dividends policies of firms listed in the Shanghai and Shenzen stock exchanges were

relatively stable over the 1999 2004 period.

Section 2 reviews literature related to dividend policy, particularly the cash

dividend policy. Section 3 presents our hypotheses, and section 4 reports data and

samples. Empirical analysis and results are presented in section 5. Section 6 concludes

this paper.

2. Literature Review

The determinants of firms dividend policies have long been a puzzle in the

finance literature (Black, 1976). Theories of dividend policy include five streams: the

bird in hand theory (Graham and Dodd, 1951); the dividend signaling theory (Miller

and Modigliani ,1961; Bhattacharya, 1979, 1980; Miller and Rock, 1985; Aharony

and Swary, 1980; Healy and Palepu, 1988; DeAngelo et. al, 1992); agency theory

(Easterbrook, 1984; Jensen ,1986; La Porta et. al, 1998a, 1998b); the clientele effect

theory (Miller and Modigliani, 1961); and behavior theory (Thaler and Shefrin, 1981;

Kahneman and Tversky, 1979). It seems that signaling theory and agency theory are


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means the controlling shareholders have a channel to transfer resources from listed

companies. Thus, in China the listed firms ownership structure may have an impact

on dividend policy, especially the cash dividend. However, previous research on

dividend policy of firms in China has not included the impact of ownership structure

on dividend policy. In this paper we study the cash dividend policy of listed

companies in China from the perspective of the ultimate shareholder.

3. Hypotheses

In financial markets such as those in the U.S., ownership is highly diverse and

market power can force the management to distribute cash dividends to meet the cash

demand of investors. This is less true in China. Shareholders in China, especially

minority shareholders, have no power to force the management or controlling

shareholders to implement dividend policies that reflect minority shareholders wishes

when they differ from those of management or controlling shareholders (Yuan, 2001;

Lee and Xiao, 2003). In addition, the market has the power to monitor managerial

decisions in the U.S., while in China managers decisions and activities are more

opaque.

Different types of controlling shareholders may have different requirements of

cash dividends, especially for state-owned enterprises (SOEs) and non-state-owned

enterprises (NSOEs).1

In China, firms controlled by NSOEs find it more difficult to

raise debt capital than firms with government ownership (Gul, 1999; Brandt and Li,

2003). This is especially true for debt financing from banks, which have been

historically controlled by the state. Since they are restricted in debt financing,

companies controlled by NSOEs rely more on equity financing. The greater reliance

on equity increases the non-state controlled firms cost of capital compared to the

state-controlled company. Thus for the same schedule of projects ranked by yield, the


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and thus will pay out more dividends to stockholders because of surplus funds. In

addition, to be able to raise external equity on attractive terms, a firm will pay

dividends to establish a reputation for fair treatment of minority shareholders. This

would also result in higher dividends.

Although Chinas government entities can force companies they control to

distribute cash dividends, the key problem is how to deal with the cash collected from

the dividends. Another problem is how much to distribute between the central

government and the local government. This conflict between Chinas government

entities affects the dividend policy of firms controlled by Chinas government bodies.

Because of such unsolved problems, profits are usually left in the companies; fewer

dividends are distributed by those controlled by the state. Furthermore, companies

controlled by the state have an advantage in obtaining capital at lower costs and more

easily than those controlled by non-state owners.

(1) The probability of cash dividend distribution, the level of cash dividends,

and the payout ratio of cash dividends are higher for companies ultimately

controlled by non-state entities than for those ultimately controlled by state.

Why do shareholders invest in companies, particularly listed companies? It may

be that they not only want to have stock appreciation, but also are eager for cash

dividends, especially the cash dividends when the companies are operated efficiently

and profitably. The reason for listed companies to distribute cash dividends is because

the ultimate shareholders have much cash flow rights in the listed companies.

Previous research such as Lv and Wang (1999), Yuan (2001), Lee and Xiao (2003), Lv

and Zhou (2005) have used the control right to proxy the controlling shareholders

expropriation incentive. Their findings indicate that control right has a great influence

on the cash dividend. We contend that the incentive to obtain cash dividends is based

h fl i ht d th t th i lt h ld b t l i ht iti l


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higher the cash dividend payout ratio distributed from listed companies.

According to Jensen and Mecklings (1976) theoretical framework, a highly

diverse ownership structure and the separation of ownership and control of the firms

resources can lead to severe agency costs. Managers, who control the firm, may

expropriate value from the firm through perks and other means. The payment of cash

dividends can reduce this problem since management will have fewer resources

available to expropriate (Jensen, 1986; La Porta et al. 2000). Faccio et al. (2002)

propose that dividends used as a means to restrain the tunneling conduct of insiders is

applicable in Asia and Europe. But in China the payment of dividends can be the

outcome of the agency problem rather than a means to control the agency cost (Yuan,

2001; Lee and Xiao, 2003). As a reflection of Chinas economic transition, most

listed firms in China were carved out from state-owned enterprises (SOEs). The

parent SOE holds the non-tradable state shares of the listed firm, and the new

shareholders from the IPO hold tradable shares (Lv and Zhou, 2005). The non-

tradable shares can be traded only with private placement between institutions under

special permission from the government.

The parent SOE directs the listed firm to undertake a rights offering in which the

parent SOE does not subscribe. The firm then uses the proceeds of the rights offering

to pay dividends. This is equivalent to the SOE selling a portion of its non-tradable

shares to other shareholders. Lee and Xiao (2004) find that the computed selling

price is about three times higher than the price officially approved through private

placement. In these cases, dividend payments are the outcome of the agency problem;

controlling shareholders use cash dividends to expropriate funds from the firm (Yuan,

2001; Lee and Xiao, 2003). The incentive to seek rent from other shareholders, in

China especially the minority shareholders, should be positively related with the

di f t l i ht d h fl i ht (L P t t l 1999 Cl t l


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strategy.2

Since both the signaling effect and the benefit transferring effect have the

same results according to the divergence of control right and cash flow right, which

effect is more reasonable in China is uncertain. To distinguish the signaling incentive

and the benefit transferring incentive, we add another variable, free cash flow (FCF),

into the model. FCF can be proxy for the signaling effect; if the coefficient for this

variable is not significant, we can accept it for the other reason, which is the benefit

transferring incentive.

(3)The higher the divergence of control right and cash flow right, the higher

the probability of cash dividends, the higher the level of cash dividends, the higher

the cash dividend payout ratio.

It has been advocated that the longer the control chaini.e., the corporate layersof

the firm, the more powerful the internal investment markets work in the firm. This

has two elements. First, investable funds can be more easily allocated within the firm.

Funds may be allocated among firms in the chain in order to use more of the available

funds (Williamson, 1985; Stein, 1997). Second, Fan et al have found that in China the

pyramidal structures are used to cross subsidize members of the chain. Ultimate

shareholders and controlling shareholders have more financing channels using multi-

layer control. Thus debt funds are more available, which reduces the cost of capital.

Both of these will lead to lower dividends for non-state owned firms. But for state-

owned companies, Fan and Wong (2005) suggest that a longer control chain means a

greater influence by market forces, and thus government intervention and support

decline as the control chain increases. Thus, as the control chain of a state-controlled

firm increases, the uncertainty from regulatory changes increases and the ease of bank

debt financing declines. Thus the cost of capital rises, more investments become

unprofitable and the firm will pay more dividends.


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(4) For state owned firms, as the control chain lengthens, the higher the

probability of cash dividends, the level of cash dividends and the level of cash

dividends per share that the listed companies distribute. For non-state owned firms

a longer control chain results in the opposite effects.

4. Data and Sample

4.1 Data Sources

Chinese listed companies have been required to disclose cash flow statements in

their annual financial reports since 1998. To make the financial data consistent in our

sample firms, we collect data from 1999. Our sample includes companies listed in

Chinas stock market from 1999 through 2004. The companies issued only A-shares

or A-shares and other types of shares, such as B, H or S. Investors external to China

represented by investors in the B, H and S sharesare subject to different laws and

regulations than domestic China investors. We seek to avoid possible distortion in our

results for domestic Chinese markets (Lee and Xiao, 2003). Thus in our robust tests

we exclude firms that issue B shares, H shares or S shares in addition to A-shares.

Our data on ownership structure was excerpted manually from the 1999 to 2004

annual financial reports of Chinese listed companies. For each firm, we collected

information on the control rights of controlling shareholders, superior shareholders,

and ultimate shareholders. Then we computed the divergence of control rights and

cash flow rights using the same method as La Porta et al. (1999), Claessens et al.

(2000) and Fan and Wong (2002). We also recorded information on the ultimate

shareholders if disclosed in the annual financial reports. However, if a firm did not

disclose enough ownership structure information, we searched their websites and

other sources to identify the ultimate shareholders. Cash dividends and other financial

data are from Genius Database, a widely cited professional database in China. In


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or had other missing information, we were left with a sample size of 6,649 from 1999

to 2004. Dropping 33 observations in financial industry and 85 outliers from 1999 to

2004, there are 6531 observations in final regressions, 847 in 1999, 990 in 2000, 1070

in 2001, 1151 in 2002, 1214 in 2003 and 1259 in 2004. The sample selection process

was reported in Table 1.

(Insert Table 1 about here)

4.2 Variables

4.2.1 Cash Dividend Policy (DIVAT, PREDIV, DPS, PREDPS, and PAYOUT,

PREPAYOUT)

We now introduce the variables describing dividend policy. DIVAT indicates

whether the listed company distributesd cash dividends in the current year (1 = yes, 0

= no). PREDIV specifies whether this firm m distributed cash dividends in the prior

year (1 = yes, 0 = no). DPS is the cash dividend per share in the current year and

PREDPS is the cash dividend per share in the prior year. PAYOUT is the cash

dividend payout ratio, which equals the cash dividend per share divided by the current

earnings per share. PREPAYOUT is the cash dividend payout ratio for the prior year.

4.2.2 Ownership Structure (V, C, CV, State and Chain)

As in Liu et al. (2003), Lai and Wu (2003), and Xia and Fang (2005), ultimate

shareholders are divided into two categories: state and non-state. STATE (1 = yes, 0 =

no) is the resulting indicator variable. Further, in order to investigate the influences of

different government authorities, we classified the State into central government

(CentralGov) and local government (LocalGov), both are dummy variables. Since

many controlling shareholders not only control listed companies directly, but also

control them indirectly through their subsidiaries invested in the same companies, the


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(1999), Claessens et al. (2000) and Fan and Wong (2002). They define cash flow right

as the product of each control right in the control chain. When measuring this variable

we also consider indirect control and multiple controls. The divergence of the control

right and the cash flow right is CV, calculated as the cash flow right divided by the

control right. Since we identify all controlling parties, we obtain the length of the

control chain. The control chain, CHAIN, represents the agent chain and the proxy for

the power of the internal capital market from the ultimate shareholders to the listed

companies, though not very precisely (Williamson, 1985; Stein, 1997; Fan et al, 2005).

The interaction term STATECHAIN (calculated as STATE*CHAIN) reflects the

association between the length of the control chain for state-owned companies.

4.2.3 Control Variables (ARECNO, FCF, FCFPS, ROA, EPS, PREFINANCE,

STDIV, STDIVPS and FIXED)

Since growing firms need cash for their investments, they tend to pay less cash

dividends. Growth is a key determinant of the dividend policy, thus we use the

revenue growth, calculated by the one year revenue growth rate, to control for this

effect.

ARECNO measures the cash embezzled by the controlling shareholders. Since

controlling shareholders and ultimate shareholders can tunnel the listed companies

both by expropriating directly and by cash dividends, to investigate the influence of

ownership structure on dividend policy, or the legal means, we should control for the

illegal means. Ma et al. (2005) define ARECNO as other accounts receivables divided

by total assets, which can be regarded as a proxy for the cash expropriated directly by

the controlling shareholder, since it is a common usage in China.

FCF is the free cash flow, which is equal to net cash flow from operating activities

minus cash expenditures on acquisition of fixed assets, intangible assets and other


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and the signaling incentive (La Porta et al., 2001; Faccio et al., 2002). FCFPS is the

free cash flow per share, equal to free cash flow divided by total shares at the end of

the year.

We control for the relationship between profitability and dividends by including

ROA and EPS as independent variables. ROA is calculated as net income divided by

total assets at the end of the year; and EPS is the earnings per share for the current

year. PREFINANCE is used to reflect the tunneling hypothesis proposed by Lee and

Xiao (2003). PREFINANCE (1 = yes, 0 = no) indicates whether the company

launched a seasoned offering in the prior year. A positive coefficient for

PREFINANCE indicates that the seasoned offering enhances the incentive of the

tunneling. STDIV (1 = yes, 0 = no) indicates whether the company distributed a stock

dividend. STDIVPS is the stock dividend per share. We also use the total debt ratio

(LEV) to control for the effect of financial leverage.

We also control for industry by including indicators for the 12 industry categories

used by the CSRC after dropping the financial industry: A. agriculture, forestry, herd

and fishery; B. mining; C. manufacturing; D. electricity, gas and water supply; E.

construction; F. traffic, storage and post; G. electron city; H. wholesale and retail; J.

estate; K. social service; L. culture, sports and entertainment; and Z. general. In

regressions we use 11 dummy variables and Z as the base. To eliminate the influence

of macro-economy among different years, we also include indicator variables to

reflect the six years 1999 through 2004. In the tables that report our regression results,

we use Yeardummy and IndDummy to indicate the industry and year effects.

5. Empirical Analysis

5.1 Statistical Description

5.1.1 Cash Dividend Policy


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which translates to an average payout ratio of 54%. Indeed several companies still

paid cash dividends although they suffered losses in that year. In 2001, both the DPS

and PAYOUT seem to be different from those in other years, which may be due to the

the CSRCs new regulation for equity refinancing required listed companies to

distribute cash dividends. In robustness check, we check the structural change in cash

dividend distribution before 2001 and after that year.


To illustrate the cash dividend policy of listed companies in China intuitively, we

report the distributions of DIVAT, DPS and PAYOUT in Figures 1 to 3. Figure 1

shows the DPS distribution. Horizontal axle indicates the DPS, while vertical axle

shows the fraction. Figure 1(a) gives the total sample DPS distribution.

Approximately half samples do not distribute cash dividends, 0 each share. And more

than 40% of the rest distribute less than RMB 0.2 per share. Figure 1(b) displays the

distribution in each sample year. Results are basically the same except that a higher

proportion of companies distribute cash dividend in 2000 and 2001 compared with

1999. In addition, companies seem to distribute more cash dividends in 2000 and

2001. Figure 1(c) reveals the distribution among companies controlled by the central

government, local governments and private entities. It appears that SOEs distribute

more cash dividends than NSOEs.

Figure 2 shows the PAYOUT distribution. The horizontal axis indicates the

PAYOUT ratio, while vertical axis shows the fraction. Figure 2(a) shows the total

PAYOUT distribution, Figure 2(b) displays the sample year distribution and Figure

2(c) shows the distribution among companies controlled by central government, local

governments and private entities. All results are basically consistent with figures and

conclusions above.

(I t Fi 1 d 2 b t h )


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shareholders to their controlled listed companies, which is a proxy for the internal

capital market. Table 3 shows the control chain distribution of sample firms in each

category and in each year.


Panel A shows the distribution of total sample firms. For both SOEs and NSOEs,

most listed companies are controlled by ultimate shareholders through two or three

layers. Central government is more likely to control listed companies through

multiple layers than local governments. Panel B gives the distribution in each sample

year. Both the central government and local governments tend to decentralize their

power, which results in a lower percentage of listed companies directly controlled by

the state. An increasing amount of listed companies are controlled by the state through

more layers, which results in the descending proportion of companies in 1 and 2

layers. This phenomenon is also presented in listed companies controlled by NSOEs.

Figure 3 shows the graphs for the sample density of the distribution of control chain

in each category and in each year.

(Insert Figure 3 about here)

5.1.3 Divergence of Cash Flow Rights and Control Rights

One of our focuses is on the influence of the agency problem coming from the

divergence of cash flow rights and control rights (voting rights); thus Table 4 gives

the CV distribution of sample firms in detail.


Panel A reveals the distribution of total sample on CV. The average CV for state

controlled firms is 0.9217, 0.8429 for central government-controlled firms and 0.9470

for local government controlled firms, while the mean CV is 0.6462 for firms

controlled by NSOEs. The mean CV in Panel B for State-controlled firms also

i di t th t th t b di d t li th i lti i l


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power on the listed companies, which is consistent with La Porta et al. (1999),

Claessens et al. (2000) and Fan and Wong (2002). Figure 4 illustrates the CV

distribution in each category and in each sample year.

(Insert Figure 4 about here)

5.1.4 Other Regression Variables

Table 5 shows the descriptive statistics of regression variables. Average ROA for

the six years is 2.12% and median ROA is 3%, showing that the return and

profitability of listed companies is low in those years. Mean EPS is RMB 0.15, while

the median is RMB 0.17. Both the profitability indicator show great deviation,

revealing the distinguished difference in the return on investment in China. The

control right of ultimate shareholders is 45.89% on average, while the cash flow right

is 40.45%, and divergence of these two rights are not severe in Chinese listed

companies, especially for those controlled by state.


5.2 Model Specification

5.2.1 Linter Dividend Model

Our model is principally based on the Linter (1956) dividend model, such that

,it i i t D r P= and*

, 1 , 1( )it i t i i it i t iD D c D D = + +

*

itD is the objective dividend payout; ir is the objective payout ratio;

,i tP is earnings per share; itD and , 1i tD are cash dividends in year t and year t-1.

Adjusting those models, we are left with:

, 1 , 2 , 1 ,i t i t i t i t D P D = + + +

5.2.2 Our Dividend Model

First we use the discrete choice model to examine how the ownership structure


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cash dividends is as follows:3

1 2 3 4

5 6 7 8 9 10

25

11 12 13

14

30

26

* * ( , ) * *

* * * * * *

* * * *

*

i

i

j

j

DIVAT PREDIV STATE CenterGov LocalGov C CV

CHAIN STATECHAIN ARECNO GROWTH ROA FCF

PREFINANCE STDIV LEV INDSDUMMY

YEARDUMMY

=

=

= + + + +

+ + + + + +

+ + + +

+ +

Then, we investigate the influence of ownership structure on the amount of cash

dividends per share. The linear regression (OLS) model on the determinants of cash

dividends per share is as follows:

1 2 3 4

5 6 7 8 9

25

10 11 12 13

14

30

26

* * ( , ) * *

* * * * *

* * * * *

*

i

i

j

j

DPS PREDPS STATE CenterGov LocalGov C CV

CHAIN STATECHAIN ARECNO GROWTH EPS

FCFPS PREFINANCE STDIVPS LEV INDSDUMMY

YEARDUMMY

=

=

= + + + +

+ + + + +

+ + + + +

+ +

Finally, the influence on the cash dividend payout ratio is examined using the

ownership structure. The OLS model on the determinants of the cash dividend payout

ratio is as follows:

1 2 3 4

5 6 7 8 9 10

25

11 12 13

14

30

26

* * ( , l ) * *

* * * * *

* * * *

*

i

i

j

j

PAYOUT PREPAYOUT STATE CenterGov Loca Gov C CV

CHAIN STATECHAIN ARECNO GROWTH ROA FCF

PREFINANCE STDIV LEV INDSDUMMY

YEARDUMMY

=

=

= + + + +

+ + + + + +

+ + + +

+ +

We use Whites adjusted t statistics to adjust for hetero-scedasticity that may

be prevalent in our cross-sectional data


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5.3 Empirical Results

Table 6, 7 and 8 are respectively the Probit model predicting whether the firm

pays a cash dividend, the OLS model predicting the amount of cash dividend, and the

OLS model predicting the dividend payout ratio. Each of these tables reports the

results of six regressions. The first two regressions use all of the sample firms. As a

robustness check we use the definition of ultimate shareholder in La Porta et al.

(1999), Claessens et al. (2000) and Fan and Wong (2002); namely, the control right

exceeds 20%. The next two regressions show the results based on this definition. In

the last two regressions we avoid the effect of foreign investors influence, by

dropping the firms that issue both A shares and other type of shares, such as B, H or

S.4

In each of the sub-sample we further investigate the distinction under the

influence of different government, including central government and local

government.

The coefficients reflecting whether the firm paid cash dividends, the level of cash

dividend and the payout ratio in the prior year are significantly positive. Companies

distributing dividends last year have a higher probability of paying dividends this year

with the same amount and the same proportion of cash dividends from earnings.

As observed by previous studies on corporate control in China, it has been easier

in the Chinese system than in other systems (the U.S. for example) for controlling

shareholders to directly expropriate funds from listed firms. However, direct

expropriation is illegal. Therefore, cash dividends are regarded as an alternative

method for controlling shareholders to obtain funds from the firm. Coefficients forARECNO are significantly negative in all three regressions in Tables 6, 7 and 8,

indicating that cash dividend and expropriation are two complementary artifices for

controlling shareholders to tunnel listed companies, which is consistent with Ma et al.


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Table 6, inconsistent with theory predicts. However, it may be explanatory since

growth firms will distribute cash dividend in order to attract investors for their firms

to finance more to invest. Growth is negatively related with the cash dividend per

share in Table 7 though not significantly, and it is significantly negative in payout

ratio determination in Table 8, consistent with the theory.

A firms profitability affects the probability of cash dividend distribution: a higher

return on assets predicts a higher probability of paying a cash dividend. This finding

is consistent with Lv and Wong (1998), Yuan (2001) and Lee and Xiao (2003).

According to agency theory (Easterbrook, 1984; Jensen ,1986; La Porta et. al,

1998a, 1998b) and signaling theory (La Porta et al., 2001; Faccio et al., 2002), the

more free cash flow in listed companies, the higher the probability of a cash dividend

distribution. But our results are that the coefficient for FCF is significantly negative in

Table 6 and insignificant in Table 8 and positively significant in the whole sample

regression in Table 7,inconsistent across all the regressions and also inconsistent with

the result of Lee and Xiao (2003). Since the CSRC and other regulatory authorities

required the distribution of cash dividends for equity refinancing after 2001, different

sample periods may result in different findings. Lee and Xiao (2003) use the sample

period from 1993 to 2001, but we use the sample period from 1999 to 2004.

Firms that issued a seasoned offering in the prior year are less likely to pay

dividends in the current year. This finding is inconsistent with Lee and Xiaos (2003)

results. This may be due to the regulatory changes of the CSRC and other regulatory

authorities that require seasoned offerings with cash dividend distributions. Another

explanation is that companies issued seasoned offering last year tend to do more

investments and have less cash to distribute dividend. We also find that the

distribution of stock dividends is positively related to the probability of distributing

h di id d hi h i i i t t ith L d Xi (2003) Thi t b


21/45

related to the probability of distributing cash dividends, which is inconsistent with

Lee and Xiao (2003). While in Table 7 and Table 8, this variable is significantly

negatively related with the DPS and PAYOUT ratio, consistent with Lee and Xiao

(2003). Leverage is significantly negatively related to the probability of distributing

cash dividends and the payout ratio, consistent with our prediction that firms with

higher debt ratios distribute less cash dividends due to debt restrictions or capital

rationing.

We expect that non-state entities have a greater need to obtain cash for ordinary

use, other operating activities, or investment compared with state enterprises. In

Tables 6 and 8, the coefficients for STATE, also CentralGov and LocalGov, are

insignificant negative in all regressions. Results show that the probability of cash

dividend distribution and the payout ratio are not significantly different among SOEs

and NSOEs. Local government and central government also show no significantly

influence on the cash dividend payout ratio and probability on listed companies.

However, the coefficients for STATE are significantly negative in all regressions in

Table 7. This may indicate that the probability for companies controlled by the

government and for non-state entities to distribute cash dividends is not significantly

different. Whereas, the amount of cash dividends and the payout ratio are all

significantly higher for NSOEs than for SOEs. When categorize the State into central

government and local government, the results of regression analysis show that

companies controlled by local government distribute cash dividends per share

significantly lower than those controlled by central government and private entities.

Local government has more incentive to support the listed companies for the benefits

of local economy and other social liabilities. These findings basically support our

predictions.

Th h fl i ht i iti l l t d t th b bilit f h di id d


22/45

incentive to seek rent from minority shareholders, thus the higher the probability of a

cash dividend distribution. This may be due to the signaling incentive, but

incorporating the effect of FCF, these results in each of the three categories of samples

are consistent with our rent seeking hypothesis. These results in each of the three

categories of samples in Tables 6, 7, and 8 are consistent with our hypothesis.

The length of the control chain is significantly negatively related to the DIVAT,

DPS and PAYOUT in all regressions in Tables 6, 7, and 8. The longer the control

chain, the more powerful the internal capital market, so ultimate shareholders need

not transfer more cash from listed companies. Cash may be used for other investment

activities or acquisitions.However, the coefficient for STATECHAIN is significantly

positive in all regressions, showing that the longer control chain, the more severe the

agency problem. Longer control chain of the state-owned companies cannot seek

financing and other support from the government as easily as those directly controlled

by the government. Results in each of the three categories of samples in Tables 6, 7

and 8on the control chain are all consistent with our hypothesis.

(Insert Tables 6, 7, and 8 about here)

5.4 Robustness test

5.4.1 Systematically Change

On March 28, 2001, the CSRCs new regulation for equity refinancing required

listed companies to distribute cash dividend. Thus, the cash dividend policy may

change systematically after that year. It has been observed that cash dividends and

related party transactions are means for controlling shareholders to transfer resources

from listed companies in China (Lee and Xiao, 2003; Lv and Zhou, 2005). However,

cash dividends have become a requirement for listed companies that issue new shares

since 2001. Meanwhile, regulations on related party transactions are becoming more


23/45

party transactions, while enhancing the role of cash dividends. To investigate the

influence of those regulations, we divide our data into two time periods: 1999 to 2001,

and 2002 to 2004.

(Insert Tables 9, 10, and 11 about here)

In Table 9, State, both central government and local government, is still not

significantly in all time periods. Ownership structure influence seems to be stronger in

A-share sub-sample, both before 2001 and after 2001. In Table 10, government

influence seems to be more significantly pervasive before 2001. And the tunneling

effect is more obvious after 2001. However, the government seems to have more

influence after 2001 when we analyze the cash dividend payout ratio in Table 11.

Generally speaking, the regulations seem to have an influence on the cash

dividend policy, payout ratio and DPS after 2001. Since some companies pay out cash

dividends even if they suffer losses in some years, the payout ratio and the prepayout

ratio are negative, and those cases may be quite different from the others. Companies

in the financial industry have the different characteristics in financial data and they are

excluded from the regression samples. In our robustness check, we include the whole

samples into the regression. Therefore, we have 6649 observations. The results are

even more significant, which are consistent with our findings.

5.4.3 Only ownership structure as explanatory variables

Because the DIVAT and PREDIV are highly correlated, so are DPS and PREDPS,

and PAYOUT and PREPAYOUT. PREDPS and PREPAYOUT may capture most of

the explanatory power. We also drop those variables for sensitivity analysis. The

results are the same as above, and dropping the variables for the prior year does lower

the power of the test; however, ownership structure still explains much of the cash

dividend policy of listed companies.


24/45

investors. In an emerging market like the Chinese stock market, investors, especially

the minority shareholders, do not have enough power to force the management or

controlling shareholders to distribute cash dividends. Controlling or ultimate

shareholders demand for cash influence managerial decision on cash dividends. We

investigate the cash dividend policy of listed companies in China from perspectives of

firms ownership structures and chains of control. We find that the level of cash

dividends is higher for companies ultimately controlled by non-state entities than for

those ultimately controlled by the state; whereas the probability of cash dividend

distribution and the cash dividend payout ratio are not significantly different. Even in

the SOEs, central government and local government have different incentives and

thus the influence on dividend. We also document that the higher the cash flow right

of ultimate shareholders, the higher the probability of cash dividends, the higher the

level of cash dividends, and the higher the level of cash dividend payout ratio.

According to the studies by La Porta et al. (1999), Claessens et al. (2000), and Fan

and Wong (2002), the incentive to seek rent from other shareholders, in China

especially the minority shareholders, should be positively related with the divergence

of the control right and the cash flow right. Our results support this theory.That is, the

higher the divergence, the stronger the incentive to seek rent from minority.

Furthermore, we show that the longer the control chain, the lower the probability of

cash dividends, the level of cash dividends, and the level of cash dividends per share.

However, for companies ultimately controlled by the state, longer control chain will

bring an opposite effect, the longer the control chain, the higher the probability of

cash dividends. Regulations have much influence on the incentives of managements

and controlling shareholders, and can change their behavior. In this paper, we also

investigate the influence of regulation on cash dividend, showing its effects.

Th i t l it l k t i h t t i i t Th t l i


25/45

market function should attract more researchers attention. Since in 2001, CSRC

issued regulations on the cash dividend of listed companies in China concerning IPO

and other financing activities, the behavior of listed companies and controlling

shareholders will change to some extent. Whether companies distribute cash dividend

to meet those regulations and what is the consequence is much interesting, however

we do not investigate this in our paper and that will be what should be further

investigated.


26/45

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Table 1: Sample Selection Process

Listed companies from 1999-2004 6935

Ultimate shareholder cannot be identified 286

Companies identified with ultimate shareholders 6649

Companies in Financial Industry 33

Outliers: 85

Payout>5 7

Payout5 5

PrePayout


30/45

Figure 1: The Distribution of Dividends Per Share (DPS)

Figure 1(a)

0

.1

.2

.3

.4

.5

Fraction

0 .2 .4 .6 .8 1DPS

Figure 1(b)

0

.2

.4

.6

0

.2

.4

.6

0 .5 1 0 .5 1 0 .5 1

1999 2000 2001

2002 2003 2004

Fraction

DPSGraphs by Year

Figure 1(c): C: Central government controlled firms, L: Local government controlled firms,

P: Non-state controlled firms

0

.2

.4

.6

.6

0 .5 1

C L

PFraction


31/45

Figure 2: Distribution of Payout Ratio in sample firms

Figure 2(a)

0

.1

.2

.3

.4

.5

Fraction

0 1 2 3 4 5PAYOUT

Figure 2(b)

0

.2

.4

.6

.8

0

.2

.4

.6

.8

-1.18e-09 5-1.18e-09 5-1.18e-09 5

1999 2000 2001

2002 2003 2004

Fraction

PAYOUTGraphs by Year



0

.2

.4

.6

.6

-1.18e-09 5

C L

PFraction


32/45


33/45

Figure 3: The Distribution of Control Chain of Sample Firms

Figure 3(a)

0

.2

.4

.6

Fraction

1 2 3 4 5Chain

Figure 3(b)

0

.2

.4

.6

0

.2

.4

.6

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

1999 2000 2001

2002 2003 2004

Fraction

ChainGraphs by Year



0

.2

.4

.6

.8

6

.8

1 2 3 4 5

C L

PFraction


34/45

Table 4: Statistic Description on the CV

Panel A: Distribution by ownership

CV

N Mean SD Min Median MaxSTATE 5191 0.9217 0.1881 0.0199 1 1

CentralGov 1265 0.8429 0.2618 0.0199 1 1

LocalGov 3926 0.9470 0.1485 0.1346 1 1

PRIVATE 1340 0.6462 0.3014 0.0171 0.6631 1

TOTAL 6531 0.8651 0.2431 0.0171 1 1

Panel B: Distribution by year

CV

State N Mean SD Min Median Max

1999 735 0.9447 0.1619 0.0361 1 1

CentralGov 159 0.8732 0.2504 0.0361 1 1

LocalGov 576 0.9644 0.1200 0.1807 1 1

2000 843 0.9399 0.1657 0.0361 1 1

CentralGov 189 0.8642 0.2492 0.0361 1 1LocalGov 654 0.9618 0.1240 0.1807 1 1

2001 891 0.9298 0.1806 0.0361 1 1

CentralGov 212 0.8478 0.2637 0.0361 1 1

LocalGov 679 0.9554 0.1357 0.1448 1 1

2002 904 0.9197 0.1899 0.0361 1 1CentralGov 222 0.8361 0.2655 0.0361 1 1

LocalGov 682 0.9469 0.1481 0.1448 1 1

2003 911 0.9025 0.2071 0.0361 1 1

CentralGov 239 0.8214 0.2715 0.0361 1 1

LocalGov 672 0.9313 0.1699 0.1444 1 12004 907 0.8993 0.2076 0.0199 1 1

CentralGov 244 0.8296 0.2632 0.0199 1 1

LocalGov 663 0.9249 0.1763 0.1346 1 1

Private N Mean SD Min Median Max1999 112 0.6643 0.3075 0.0971 0.70 1

2000 147 0.6599 0.2934 0.0971 0.70 1

2001 179 0.6493 0.2979 0.0971 0.70 1

2002 247 0.6395 0.3030 0.0562 0.65 1

2003 303 0.6352 0.3065 0.0171 0.65 12004 352 0.6473 0.3008 0.0171 0.67 1

Total N Mean SD Min Median Max

1999 847 0.9077 0.2102 0.0361 1 1

2000 990 0.8984 0.2145 0.0361 1 12001 1070 0.8828 0.2300 0.0361 1 1


35/45

Figure 4: The Distribution of the Divergence of the Control Right and the Cash Flow Right

(CV) of Sample Firms

Figure 4(a)

0

.2

.4

.6

.8

Fraction

0 .2 .4 .6 .8 1CV

Figure 4(b)

0

.2

.4

.6

.8

0

.2

.4

.6

.8

0 .5 1 0 .5 1 0 .5 1

1999 2000 2001

2002 2003 2004

Fraction

CVGraphs by Year



0

.2

.4

.6

.8

8

0 .5 1

C L

PFraction


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Table 5: Descriptive Statistics

DIVAT, the dependent variable, is a dummy variable. One indicates the listed company distributing cash

dividends at current year, zero otherwise; PREDIV is also a dummy variable. One indicates the listed

company distributing cash dividends at prior year, zero otherwise; DPS, the dependent variable, the cash

dividends per share listed company distributes in current year; PREDPS is the cash dividends per share

distributed by the listed company at prior year; PAYOUT, the dependent variable, the cash dividend

distributed by the listed company from its earnings in current year; PREPAYOUT is the cash dividend

distributed by the listed company from its earnings at prior year; ROA: Return on Asset=Net income/Total

assets at the end of the year; EPS: earnings per share, EPS=Net income/Total shares at the end of year;

FCF: the free cash flow=(Net cash flow from operating activities- cash expenditures on acquisition of fixed

assets, intangible assets and other long-term assets)/Total assets at the end of year; FCFPS: the free cashflow=(Net cash flow from operating activities-cash expenditures on acquisition of fixed assets, intangible

assets and other long-term assets)/Total shares at the end of year; PREFINANCE, a dummy variable, 1

indicates that the listed company launched a seasoned offering in prior year, 0 otherwise; STDIV, a dummy

variable, 1 indicates that the listed company distributes stock dividends, 0 otherwise; STDIVPS the stock

dividends per share distributed by the listed company in current year; ARECNO, capital expropriated by

the controlling shareholder, equals to the other receivables divided by total asset; GROWTH, revenue this

year divided by the revenue last year; LEV: the leverage of debt, equals to the total debt divided by the

total assets at the end of the year;V: Control right of ultimate shareholder; Sum of the bottom levelcontrol rights of ultimate shareholder allowing for indirect control and multiple controls; C: Ownership

right (the cash flow right): The product of each control right through the control chain; CV: the divergenceof the control right and the cash flow right, CV=C/V; Chain: Agent chain from the listed companies (the

bottom of the pyramid) to the ultimate shareholders; StateDummy variable, 1 indicates that the ultimate

shareholder is the government, and 0 denotes the companies owned by non-state entities.

Variables N Mean STD Min Median Max

DIVAT 6531 0.5188 0.4997 0 1 1

PREDIV 6531 0.4699 0.4991 0 0 1

DPS 6531 0.0709 0.1014 0 0.02 1

PREDPS 6531 0.0644 0.1005 0 0 1.25

PAYOUT 6531 0.2757 0.3847 0 0.12 4.88

PREPAYOUT 6531 0.2492 0.3786 0 0 4.88

ROA 6531 0.0212 0.0842 -0.99 0.03 0.51

EPS 6531 0.1507 0.3521 -3.11 0.17 2.88

FCF 6531 -0.0194 0.1000 -0.75 -0.01 0.74

FCFPS 6531 -0.1416 0.6975 -8.36 -0.05 9.77

PREFINANCE 6531 0.1116 0.3149 0 0 1

STDIV 6531 0.0652 0.2469 0 0 1

STDIVPS 6531 0.0128 0.0569 0 0 0.80

ARECNO 6531 0.0720 0.0965 0 0.04 1.08

GROWTH(%) 6531 23.3199 60.8088 -100 14.78 971.94

LEV(%) 6531 46.7512 25.6760 0.81 45.08 498.92V(%) 6531 45.8877 16.9392 5.00 46.00 89.00

C(%) 6531 40.4494 19.5531 1.00 40.00 89.00

CV 6531 0.8651 0.2431 0.02 1.00 1.00


37/45

Table 6: Probit Model on the Determinants of Cash Dividend Policy

Variables ExpSignModel

All sample

Model

All sample

Model

V>0.2

Model

V>0.2

Model

A-Share

Model

A-Share

PREDIV +0.8666

(21.51)***

0.8665

(21.50) ***

0.8657

(21.06) ***

0.8658

(21.06) ***

0.7958

(18.73) ***

0.7961

(18.74) ***

STATE --0.1288

(-0.90)

-0.0973

(-0.66)

-0.1121

(-0.77)

CentralGov --0.0490

(-0.31)

-0.0350

(-0.22)

-0.0384

(-0.24)

LocalGov --0.1178

(-0.82)

-0.0892

(-0.61)

-0.1021

(-0.70)

C + 0.4177(3.10) ***

0.4178(3.10) ***

0.4484(3.06) ***

0.4474(3.06) ***

0.5803(4.12) ***

0.5792(4.12) ***

CV --0.2265

(-1.90) *

-0.2163

(-1.82) *

-0.2439

(-1.94) *

-0.2345

(-1.86) *

-0.3402

(-2.72) ***

-0.3297

(-2.64) ***

CHAIN --0.1237

(-2.38) **

-0.1221

(-2.35) **

-0.1184

(-2.23) **

-0.1171

(-2.20) **

-0.1385

(-2.59) ***

-0.1371

(-2.56) ***

STATECHAIN +0.1263

(2.21) **

0.1131

(1.94) *

0.1208

(2.07) **

0.1105

(1.86) *

0.1260

(2.13) **

0.1139

(1.89) *

ARECNO --3.8359

(-10.03) ***

-3.8320

(-10.03) ***

-3.8659

(-9.87) ***

-3.8631

(-9.86) ***

-3.8743

(-10.41) ***

-3.8774

(-10.42) ***

GROWTH -0.0590

(1.80) *

0.0588

(1.79) *

0.0544

(1.58)

0.0541

(1.57)

0.0538

(1.57)

0.0536

(1.56)ROA +

11.5901

(9.43) ***

11.6012

(9.42) ***

11.3555

(9.31) ***

11.3665

(9.30) ***

11.2346

(8.82) ***

11.2429

(8.81) ***

FCF +-0.6594

(-3.32) ***

-0.6723

(-3.38) ***

-0.6852

(-3.40) ***

-0.6951

(-3.44) ***

-0.7532

(-3.70) ***

-0.7643

(-3.74) ***

PREFINANCE +-0.1382

(-2.24) **

-0.1375

(-2.23) **

-0.1531

(-2.42) **

-0.1526

(-2.42) **

-0.1277

(-2.05) **

-0.1275

(-2.04) **

STDIV -0.4884

(5.37) ***

0.4893

(5.39) ***

0.4932

(5.32) ***

0.4940

(5.33) ***

0.4831

(5.19) ***

0.4840

(5.21) ***

LEV --0.6266

(-4.43) ***

-0.6183

(-4.37) ***

-0.6366

(-4.40) ***

-0.6296

(-4.35) ***

-0.5718

(-3.87) ***

-0.5608

(-3.79) ***

Constant

-0.7971

(-3.45) ***

-0.8156

(-3.53) ***

-0.7392

(-3.16) ***

-0.7551

(-3.23) ***

-0.7627

(-3.18) ***

-0.7818

(-3.26) ***YearDummy Control Control Control Control Control Control

IndDummy Control Control Control Control Control ControlN 6531 6531 6234 6234 5900 5900

Wald-Chi2 1404.98 1406.08 1327.54 1327.78 1280.80 1282.95

Pseudo R2 0.3330 0.3332 0.3289 0.3291 0.3204 0.3206

In the parentheses is the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level.

Deleted:

**, **, and * denote statisticalsignificance at the 0.01, 0.05, and 0.10

level, respectively.

Section Break (Next Page)


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Table 7: Linear Regression on the Determinants of Cash Dividends Per Share


All sample

Model

All sample

Model

V>0.2

Model

V>0.2

Model

A-Share

Model

A-Share

PREDPS +0.3185

(14.33) ***

0.3183

(14.32) ***

0.3042

(13.61) ***

0.3040

(13.60) ***

0.2872

(12.47) ***

0.2870

(12.46) ***

STATE --0.0184

(-2.30) **-0.0194

(-2.34) **-0.0170

(-2.08) **

CentralGov --0.0138

(-1.59)

-0.0151

(-1.67) *

-0.0116

(-1.28)

LocalGov --0.0178

(-2.22) **-0.0189

(-2.27) **-0.0163

(-1.98) **

C + 0.0558(6.78) ***

0.0559(6.80) ***

0.0646(7.28) ***

0.0646(7.29) ***

0.0701(7.94) ***

0.0701(7.94) ***

CV --0.0224

(-3.86) ***

-0.0218

(-3.77) ***

-0.0256

(-4.23) ***

-0.0250

(-4.12) ***

-0.0254

(-4.12) ***

-0.0246

(-3.99) ***

CHAIN --0.0079

(-3.06) ***

-0.0078

(-3.03) ***

-0.0079

(-2.99) ***

-0.0078

(-2.96) ***

-0.0076

(-2.88) ***

-0.0075

(-2.84) ***

STATECHAIN +0.0059

(1.99) **0.0051(1.70) *

0.0062(2.03) **

0.0055(1.77) *

0.0054(1.78) *

0.0045

(1.45)

ARECNO --0.0504

(-4.79) ***

-0.0502

(-4.78) ***

-0.0506

(-4.56) ***

-0.0505

(-4.56) ***

-0.0507

(-4.44) ***

-0.0509

(-4.46) ***

GROWTH --0.0019

(-1.43)

-0.0019

(-1.42)

-0.0021

(-1.45)

-0.0021

(-1.45)

-0.0019

(-1.35)

-0.0018

(-1.34)EPS +

0.0960

(13.87) ***

0.0958

(13.88) ***

0.0984

(13.65) ***

0.0983

(13.67) ***

0.0955

(12.82) ***

0.0955

(12.84) ***

FCFPS +0.0033

(1.77) *

0.0032

(1.73) *

0.0025

(1.33)

0.0024

(1.29)

0.0024

(1.25)

0.0023

(1.21)

PREFINANCE +-0.0057

(-1.65) *

-0.0057

(-1.64)-0.0070

(-1.95) *

-0.0069

(-1.94) *

-0.0052

(-1.47)

-0.0052

(-1.45)

STDIVPS --0.0518

(-2.39) **

-0.0519

(-2.39) **

-0.0526

(-2.37) **

-0.0527

(-2.37) **

-0.0601

(-2.76) ***

-0.0602

(-2.77) ***

LEV --0.0061

(-1.69) *

-0.0060

(-1.68) *

-0.0081

(-1.79) *

-0.0079

(-1.74) *

-0.0041

(-0.96)

-0.0038

(-0.87)

Constant0.0315

(3.16) ***

0.0309

(3.09) ***

0.0322

(3.14) ***

0.0314

(3.06) ***

0.0281

(2.68) ***

0.0270

(2.57) ***YearDummy Control Control Control Control Control Control

IndDummy Control Control Control Control Control Control

N 6531 6531 6234 6234 5900 5900

F 57.88 56.24 53.26 51.76 51.33 49.85

R2 0.3606 0.3608 0.3570 0.3572 0.3411 0.3414



39/45

Table 8: Linear Regression on the Determinants of Cash Dividend Payout Ratio


All sample

Model

All sample

Model

V>0.2

Model

V>0.2

Model

A-Share

Model

A-Share

PREPAYOUT +0.2198

(11.16) ***

0.2196

(11.14) ***

0.2146

(10.77) ***

0.2145

(10.76) ***

0.2027

(9.92) ***

0.2026

(9.91) ***

STATE --0.0498

(-1.50)

-0.0438

(-1.26)

-0.0411

(-1.19)

CentralGov --0.0394

(-1.07)

-0.0372

(-0.96)

-0.0329

(-0.85)

LocalGov --0.0484

(-1.45)

-0.0429

(-1.23)

-0.0400

(-1.15)

C + 0.1998(5.80) ***

0.1999(5.81) ***

0.2081(5.38) ***

0.2081(5.38) ***

0.2316(6.25) ***

0.2315(6.25) ***

CV --0.0647

(-2.60) ***

-0.0634

(-2.55) **

-0.0683

(-2.52) **

-0.0673

(-2.48) ***

-0.0788

(-2.92) ***

-0.0776

(-2.87) ***

CHAIN --0.0359

(-3.50) ***

-0.0358

(-3.48) ***

-0.0343

(-3.23) ***

-0.0342

(-3.22) ***

-0.0359

(-3.35) ***

-0.0357

(-3.33) ***

STATECHAIN +0.0245

(2.10) **0.0228(1.89) *

0.0230(1.91) *

0.0220(1.76) *

0.0244(1.99) **

0.0230(1.81) *

ARECNO --0.4821

(-10.49) ***

-0.4817

(-10.49) ***

-0.4812

(-9.71) ***

-0.4810

(-9.71) ***

-0.4812

(-9.73) ***

-0.4813

(-9.74) ***

GROWTH --0.0139

(-2.55) **

-0.0139

(-2.54) **

-0.0146

(-2.48) **

-0.0146

(-2.49) **

-0.0139

(-2.38) **

-0.0139

(-2.38) **ROA +

0.3553

(6.77) ***

0.3547

(6.77) ***

0.3656

(6.47) ***

0.3657

(6.48) ***

0.3198

(5.65) ***

0.3198

(5.66) ***

FCF +-0.0192

(-0.45)

-0.0209

(-0.48)

-0.0272

(-0.61)

-0.0283

(-0.63)

-0.0171

(-0.37)

-0.0185

(-0.40)

PREFINANCE +-0.0110

(-0.70)

-0.0109

(-0.70)

-0.0134

(-0.83)

-0.0134

(-0.83)

-0.0106

(-0.66)

-0.0105

(-0.66)

STDIV --0.0881

(-8.09) ***

-0.0882

(-8.10) ***

-0.0904

(-8.07) ***

-0.0904

(-8.08) ***

-0.0930

(-8.24) ***

-0.0930

(-8.25) ***

LEV --0.1373

(-5.99) ***

-0.1371

(-6.00) ***

-0.1634

(-5.95) ***

-0.1630

(-5.92) ***

-0.1559

(-5.98) ***

-0.1553

(-5.96) ***

Constant0.2845

(7.04) ***

0.2829

(7.00) ***

0.3027

(7.15) ***

0.3014

(7.11) ***

0.2885

(6.76) ***

0.2868

(6.71) ***YearDummy Control Control Control Control Control Control

IndDummy Control Control Control Control Control Control

N 6531 6531 6234 6234 5900 5900

F 49.25 47.89 47.12 45.76 44.69 43.70

R2 0.1659 0.1659 0.1629 0.1629 0.1602 0.1602



40/45

Table 9: Probit Model on the Determinants of Cash Dividend Policy on Systematically Change

VariablesModel

02-04

Model

02-04

Model

99-01

Model

99-01

Model

02-04

v>0.2

Model

02-04

v>0.2

Model

99-01

v>0.2

Model

99-01

v>0.2

Model

02-04

A-Share

Model

02-04

A-Share

Model

99-01

A-Share

Model

99-01

A-Share

PREDIV1.0583

(19.33)

***

1.0583

(19.33)

***

0.5874

(9.75)

***

0.5860

(9.71)

***

1.0734

(19.24)

***

1.0734

(19.24)

***

0.5707

(9.28)

***

0.5695

(9.25)

***

0.9863

(17.34)

***

0.9862

(17.34)

***

0.4999

(7.74)

***

0.5009

(7.75)

***

STATE -0.0845(-0.42)

-0.1943(-0.90)

-0.0227(-0.11)

-0.2000(-0.90)

-0.0775(-0.38)

-0.1895(-0.86)

CentralGov-0.0718

(-0.33)

-0.0194

(-0.08)

-0.0237

(-0.11)

-0.0414

(-0.17)

-0.0406

(-0.18)

-0.0644

(-0.27)

LocalGov-0.0831

(-0.42)

-0.1665

(-0.77)

-0.0228

(-0.11)

-0.1759

(-0.79)

-0.0734

(-0.36)

-0.1699

(-0.77)

C

0.5438

(2.78)

***

0.5430

(2.78)

***

0.3261

(1.74)

*

0.3370

(1.79)

*

0.5474

(2.58)

***

0.5475

(2.59)

***

0.3476

(1.71)

*

0.3534

(1.74)

*

0.7034

(3.47)

***

0.7006

(3.46)

***

0.5006

(2.53)

**

0.5052

(2.55)

**

CV

-0.2471

(-1.52)

-0.2454

(-1.51)

-0.2329

(-1.27)

-0.2081

(-1.14)

-0.2497

(-1.46)

-0.2498

(-1.46)

-0.2471

(-1.28)

-0.2196

(-1.13)-0.3530(-2.09)

**

-0.3480(-2.06)

**

-0.3515(-1.80)

*

-0.3302(-1.69)

*

CHAIN-0.1233(-1.72)

*

-0.1231(-1.71)

*

-0.1185

(-1.47)

-0.1144

(-1.42)

-0.1137

(-1.54)

-0.1137

(-1.54)

-0.1225

(-1.47)

-0.1183

(-1.42)-0.1269(-1.72)

*

-0.1263(-1.72)

*

-0.1577(-1.87)

*

-0.1545(-1.84)

*

STATECHAIN

0.1027

(1.29)

0.1007

( 1.24)

0.1512

(1.73)*

0.1203

(1.35)

0.0882

(1.08)

0.0883

(1.06)

0.1616

(1.80)*

0.1336

(1.47)

0.0985

(1.21)

0.0928

(1.12)

0.1700

(1.86)*

0.1479

(1.59)

ARECNO-5.3638

(-7.44)

***

-5.3665

(-7.45)

***

-3.0008

(-7.37)

***

-2.9674

(-7.27)

***

-5.4135

(-7.34)

***

-5.4132

(-7.34)

***

-3.0441

(-7.27)

***

-3.0121

(-7.18)

***

-5.3441

(-7.34)

***

-5.3548

(-7.36)

***

-2.9720

(-7.56)

***

-2.9609

(-7.53)

***

GROWTH0.1133

(2.62)

***

0.1134

(2.62)

***

-0.0022

(-0.04)

-0.0035

(-0.07)0.1278

(2.67)

***

0.1278

(2.67)

***

-0.0254

(-0.48)

-0.0268

(-0.51)0.1078

(2.43)

**

0.1079

(2.43)

**

-0.0189

(-0.34)

-0.0202

(-0.37)

ROA12.0519

(6.13)

***

12.0520

(6.12)

***

11.2948

(10.61)

***

11.3407

(10.57)

***

11.7811

(6.09)

***

11.7811

(6.09)

***

11.1491

(10.40)

***

11.1978

(10.36)

***

11.6794

(5.77)

***

11.6818

(5.77)

***

11.0744

(9.93)

***

11.0932

(9.90)

***


41/45

FCF-0.2101(-0.78)

-0.2120(-0.79)

-1.0473

(-3.49)

***

-1.0818

(-3.59)

***

-0.2224(-0.82)

-0.2223(-0.82)

-1.0962

(-3.59)

***

-1.1257

(-3.68)

***

-0.2891(-1.04)

-0.2940

(-1.06)-1.1445

(-3.73)

***

-1.1688

(-3.80)

***

PREFINANCE0.0657(0.54)

0.0664(0.54)

-0.1741

(-2.57)

***

-0.1754

(-2.59)

***

0.0413(0.33)

0.0412(0.33)

-0.1872

(-2.70)

***

-0.1885

(-2.73)

***

0.0800(0.66)

0.0818(0.68)

-0.1684

(-2.43)

**

-0.1698

(-2.46)

**

STDIV0.8541

(5.20)

***

0.8538

(5.20)

***

0.2573

(2.38)

**

0.2618

(2.43)

**

0.8701

(5.13)

***

0.8702

(5.13)

***

0.2571

(2.33)

**

0.2605

(2.37)

**

0.8365

(5.10)

***

0.8359

(5.10)

***

0.2502

(2.25)

**

0.2539

(2.28)

**

LEV-0.7192(-3.75)

***

-0.7177(-3.74)

***

-0.4964(-2.73)

***

-0.47914(-2.63)

***

-0.7394(-3.78)

***

-0.7395(-3.78)

***

-0.4938(-2.64)

***

-0.4772(-2.55)

**

-0.6244(-3.17)

***

-0.6183(-3.15)

***

-0.4784(-2.45)

**

-0.4609(-2.35)

**

Constant

-0.4238

(-1.45)

-0.4261

(-1.46)-0.6188

(-2.07)

**

-0.6703

(-2.23)

**

-0.3768

(-1.27)

-0.3766

(-1.27)-0.5401

(-1.75)

*

-0.5920

(-1.91)

*

-0.3810

(-1.26)

-0.3888

(-1.29)-0.5219

(-1.67)

*

-0.5629

(-1.79)

*YearDummy Control Control Control Control Control Control Control Control Control Control Control Control

IndDummy Control Control Control Control Control Control Control Control Control Control Control Control

N 3624 3624 2907 2907 3448 3448 2786 2786 3294 3294 2606 2606

Wald-Chi 881.60 883.51 639.11 639.10 830.92 831.51 608.40 608.47 778.18 779.84 599.27 600.93Pseudo R2 0.3967 0.3967 0.2783 0.2793 0.3940 0.3940 0.2755 0.2763 0.3790 0.3790 0.2717 0.2722

In the parentheses are the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level,respectively.


42/45

Table 10: Linear Regression on the Determinants of Cash Dividends Per Share on Systematically Change

VariablesModel

02-04

Model

02-04

Model

99-01

Model

99-01

Model

02-04

v>0.2

Model

02-04

v>0.2

Model

99-01

v>0.2

Model

99-01

v>0.2

Model

02-04

A-Share

Model

02-04

A-Share

Model

99-01

A-Share

Model

99-01

A-Share

PREDIV0.4417

(15.95)

***

0.4417

(15.94)

***

0.1862

(6.21)

***

0.1858

(6.21)

***

0.4345

(15.60)

***

0.4345

(15.59)

***

0.1672

(5.72)

***

0.1665

(5.71)

***

0.4133

(14.36)

***

0.4133

(14.35)

***

0.1501

(4.92)

***

0.1498

(4.91)

***

STATE -0.0152(-1.42)

-0.0279(-2.29)

**

-0.0164(-1.47) -0.0283(-2.23)

**

-0.0132(-1.20) -0.0293(-2.39)

**

CentralGov-0.0159

(-1.37)

-0.0170

(-1.30)

-0.0179

(-1.48)

-0.0164

(-1.20)

-0.0130

(-1.06)

-0.0181

(-1.34)

LocalGov

-0.0153

(-1.43)-0.0263(-2.16)

**

-0.0165

(-1.49)-0.0267(-2.09)

**

-0.0132

(-1.19)-0.0277(-2.25)

**

C0.0515

(4.44)***

0.0515

(4.44)***

0.0528

(4.53)***

0.0534

(4.59)***

0.0576

(4.57)***

0.0577

(4.57)***

0.0613

( 4.98)***

0.0617

(5.03)***

0.0656

(5.28)***

0.0656

(5.28)***

0.0667

(5.30)***

0.0669

(5.33)***

CV

-0.0242

(-3.29)***

-0.0243

(-3.30)***1

-0.0123(-1.34)

-0.0109

(-1.19)

-0.0268

(-3.45)***

-0.0270

(-3.48)***

-0.0135

(-1.44)

-0.0117

(-1.24)

-0.0278

(-3.53)***

-0.0278

(-3.52)***

-0.0137

(-1.42)

-0.0120

(-1.24)

CHAIN-0.0079

(-2.39)

**

-0.0079

(-2.39)

**

-0.0094

(-2.37)

**

-0.0092

(-2.32)

**

-0.0081

(-2.38)

**

-0.0081

(-2.39)

**

-0.0090

(-2.21)

**

-0.0087

(-2.15)

**

-0.0074

(-2.14)

**

-0.0074

(-2.13)

**

-0.0105

(-2.70)

***

-0.0102

(-2.64)

***

STATECHAIN

0.0060

(1.53)

0.0061

(1.53)

0.0075

(1.71)

*

0.0057

(1.26)

0.0063

(1.58)

0.0066

(1.61)

0.0077

(1.69)

*

0.0056

(1.22)

0.0047

(1.17)

0.0047

(1.13)

0.0093

(2.11)

**

0.0074

(1.64)

ARECNO-0.0142(-0.96)

-0.0141(-0.96)

-0.0822

(-5.60)

***

-0.0807

(-5.51)

***

-0.0155(-0.98)

0.327

-0.0153(-0.97)

0.334

-0.0801

(-5.28)

***

-0.0784

(-5.19)

***

-0.0146(-0.93)

-0.0146(-0.93)

-0.0845

(-5.18)

***

-0.0837

(-5.14)

***

GROWTH-0.0004

(-0.27)

-0.0004(-0.27)

-0.0047(-2.06)

**

-0.0047(-2.07)

**

-0.00004(-0.02)

-0.00004(-0.02)

-0.0053(-2.32)

**

-0.0054(-2.33)

**

-0.0008(-0.51)

-0.0008(-0.51)

-0.0042(-1.62)

-0.0042(-1.63)

EPS 0.0812 0.0812 0.1215 0.1212 0.0835 0.0835 0.1222 0.1220 0.0820 0.0820 0.1175 0.1172


43/45

(9.52)

***

(9.54)

***

(10.83)

***

(10.83)

***

(9.32)

***

(9.32)

***

(10.57)

***

(10.58)

***

(8.90)

***

(8.90)

***

(9.66)

***

(9.65)

***

FCFPS0.0048

(2.24)

**

0.0048

(2.26)

**

0.0026

(0.74)

0.0023

(0.67)0.0043

(1.95)

*

0.0043

(1.97)

**

0.0017

(0.50)

0.0015

(0.42)0.0044

(1.92)

*

0.0044

(1.93)

*

0.0005

(0.14)

0.0002

(0.07)

PREFINANCE-0.0057(-1.03)

-0.0057(-1.03)

-0.0059(-1.43)

-0.0060(-1.44)

-0.0079(-1.36)

-0.0080(-1.37)

-0.0069(-1.62)

-0.0069(-1.63)

-0.0053(-0.94)

-0.0053(-0.94)

-0.0052(-1.21)

-0.0052(-1.22)

STDIVPS

-0.0153

(-0.48)

-0.0152

(-0.47)-0.1022

(-3.65)

***

-0.1010

(-3.61)

***

-0.0144

(-0.44)

-0.0141

(-0.43)-0.1027

(-3.59)

***

-0.1016

(-3.56)

***

-0.0128

(-0.38)

-0.0128

(-0.38)-0.1147

(-4.22)

***

-0.1134

(-4.17)

***

LEV-0.0061

(-1.67)

*

-0.0061

(-1.67)

*

0.0013

(0.15)

0.0018

(0.20)-0.0086

(-1.74)

*

-0.0087

(-1.75)

*

-0.0005

(-0.06)

-1.50e-07

(-0.00)

-0.0049

(-1.07)

-0.0049

(-1.06)

0.0033

(0.36)

0.0041

(0.44)

Constant0.0411

(3.35)

***

0.0412

(3.35)

***

0.0362

(2.33)

**

0.0339

(2.17)

**

0.0445

(3.50)

***

0.0448

(3.50)

***

0.0341

(2.19)

**

0.0313

(2.00)

**

0.0409

(3.16)

***

0.0409

(3.14)

***

0.0342

(2.17)

**

0.0314

(1.98)

**

YearDummy Control Control Control Control Control Control Control Control Control Control Control Control

IndDummy Control Control Control Control Control Control Control Control Control Control Control ControlN 3624 3624 2907 2907 3448 3448 2786 2786 3294 3294 2606 2606

F 52.73 50.80 26.05 25.63 49.16 47.37 24.22 23.88 47.04 45.34 23.13 22.64

R2 0.4363 0.4363 0.2926 0.2937 0.4349 0.4349 0.2877 0.2891 0.4193 0.4193 0.2712 0.2724

In the parentheses are the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level,

respectively.


44/45

Table 11: Linear Regression on the Determinants of Cash Dividend Payout Ratio on Systematically Change

VariablesModel

02-04

Model

02-04

Model

99-01

Model

99-01

Model

02-04

v>0.2

Model

02-04

v>0.2

Model

99-01

v>0.2

Model

99-01

v>0.2

Model

02-04

A-Share

Model

02-04

A-Share

Model

99-01

A-Share

Model

99-01

A-Share

PREPAYOUT0.31

ownership structure, control chains, and cash dividend policy in china

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