Family control, institutional environment and cash dividend policy: Evidence from China

Zhihua Wei, Shinong Wu, Changqing Li, Wei Chen
abstract
Using a sample of 1486 Chinese A-share listed companies for the period 2004–2008, thisstudy empirically tests the impact of family control, institutional environment and theirinteraction on the cash dividend policy of listed companies. Our results indicate that (1)family firms have a lower cash dividend payout ratio and propensity to pay dividends thannon-family firms; (2) a favorable regional institutional environment has a significant positiveimpact on the cash dividend payout ratio and propensity to pay dividends of listed companies;and (3) the impact of the regional institutional environment on cash dividends isstronger in family firms than in non-family firms. Somewhat surprisingly, we find that controllingfamily shareholders in China may intensify Agency Problem I (the owner–managerconflict) rather than Agency Problem II (the controlling shareholder–minority shareholderconflict), and thus have a significant negative impact on cash dividend policy. In contrast,a favorable regional institutional environment plays a positive corporate governance rolein mitigating Agency Problem I and encouraging family firms to pay cash dividends.
2011 China Journal of Accounting Research. Founded by Sun Yat-sen University and CityUniversity of Hong Kong. Production and hosting by Elsevier B.V. All rights reserved.