Ultimate Ownership, Corporate Diversification, and Cash Dividends: Evidence from China

ABSTRACT

Using a sample of listed companies from the Chinese stock market between 2003 and 2017, this article investigates the effect of corporate diversification on cash dividend payments and the exacerbating effects of the ultimate controller. Our results show that diversification reduces cash dividend payments and that a state-owned controller exacerbates such adverse effects; this exacerbating role is especially significant in cases of greater government intervention and greater political mobility pressure on executives who seek political advancement. Further study also shows that an increased marketization process (MP) and government quality (GQ) mitigate the negative impact of diversification on dividend payments, and that the mitigating effects of MP and GQ are particularly prominent in state-owned enterprises.

KEYWORDS:

• Cash dividend
• diversification
• resource constraint
• agency conflicts

JEL:

• D25
• G34
• G35

Acknowledgments

We thank the editor and the reviewers. Xingquan Yang acknowledges the National Natural Science Foundation of China (No.71762024, No.72062027); Cultural experts and the talent project of ‘Four a batche’ of Publicity Department of the Communist Party of China; Renowned Accounting Scholar Cultivation Project (2017) of the Ministry of Finance of the People’s Republic of China; Yumei Fu thanks for the National Social Science Foundation of China (No.16CGL012); Distinguished talents Program of Shihezi University [RCSK2018C17].

Supplementary Material

Supplemental data for this article can be accessed on the publisher’s website.

Notes

1. Due to the separation of ownership and control rights in SOEs and the lack of shareholder supervision, the managers control the SOEs in usual.

2. A database that is widely used in cross-country studies.

3. Which is from the following platform, http://new.ccerdata.cn/.

4. Based on the fact that the next cash dividend payments may not directly affect each lag-period variable, but is highly correlated to the independent variable. We put the first-stage regression results of running IV into the supplementary files for brevity (Appendix C).

5. These include all the control variables in model (1).

6. Corresponding test when running PSM are all meted and which provided in the supplementary files.