Cash dividend policy, corporate pyramids, and ownership structure: Evidence from China

Article history: Received 21 September 2011 Received in revised form 28 December 2012 Accepted 7 January 2013 Available online 23 January 2013 This paper investigates how the state-controlling ownership and the ownership through corporate pyramid structures affect the dividend policies of publicly listed firms in China. We find that the state-controlled firms in China pay higher dividends (measured by the dividend yield and the dividend payout ratio) than the privately controlled firms. We also find that as the control chain of the firm lengthens, the firm pays lower dividends. We conclude that the privately controlled firms in China pay lower dividends than the state-controlled firms because the former are more capital-constrained in obtaining external equity and long-term debt, other things being equal, and depend more on internal equity to finance growth. The negative association between the length of the control chain and dividends comes from a greater use of investable funds among Chinese firms under corporate pyramids, which is one of the features of the internal capital markets for firms under pyramid structures. © 2013 Elsevier Inc. All rights reserved.