Non-negotiable Shares, Controlling Shareholders, and Dividend Payments in China

China has some unique institutional features. For example, the shares of listed firms are segmented into negotiable and nonnegotiable. The controlling shareholders, usually connected to the government, hold nonnegotiable shares. We examine how these institutional features affected cash dividend payments in China during the period 1994-2006. We find that, despite China’s unique institutional setups, conventional factors, especially profitability or the capability to pay, still play an important role in determining the dividend policy. Although controlling shareholders prefer cash dividends, they cannot force firms to pay or to pay more dividends when firms’ earnings decline significantly. The propensity to pay and the payout ratio are not high compared to those of other countries. The 2001 CSRC stipulation requiring cash dividend payments does not benefit negotiable shareholders.