The impact of ownership structure on dividend policy and cash holdings for Chinese privatised firms
by Ohaness G. Paskelian; Stephen Bell; Julia Creek
International Journal of Corporate Governance (IJCG), Vol. 9, No. 3, 2018

Abstract: This paper examines the impact of ownership structure on dividend policies and cash holdings of privatised Chinese firms. In particular, we examine investor valuation of dividends and cash holdings between firms where the Chinese Government holds majority ownership versus firms where private and foreign stockholders possess substantial ownership. We also examine measures designed to reflect agency problems in privatised Chinese firms to determine if dividend and cash holding policies can alleviate these agency problems. We find that government ownership has negative impact on firm value in China. In addition, we find that in firms where the government ownership is substantial, holding large reserves of cash does not impact on the firm's future profitability. In contrast, we find that firms with low government ownership concentration have better use for cash thus, relatively lower dividend payments constitutes positive signal about the firm's future prospects. Finally, we find foreign ownership has positive impact on firm value and contributes to mitigation of agency problems in Chinese firms.

Online publication date: Tue, 04-Sep-2018

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