Ownership concentration, firm performance, and dividend policy in Hong Kong

Zhilan Chen, Yan-Leung Cheung, Aris Stouraitis, Anita W.S. Wong
Department of Economics and Finance, City University of HongKong, 83 Tat Chee Avenue, Kowloon Tong, Hong Kong
Received 25 July 2002; accepted 6 December 2004Available online 23 March 2005
Abstract
We analyze a sample of 412 publicly listed Hong Kong firms during 1995–1998 in order to answer three questions. Does concentrated family ownership affect firm operating performance and value? Does it affect dividend policy? What is the impact of corporate governance on performance, value, and dividend payouts? Our results do not show a positive relationshipbetween family ownership and return on assets, return on equity or the market-to-book ratio. In addition, we find a negative relationship between CEO duality and performance (where CEO duality is much more likely in family-controlled firms). We also find little relationship between family ownership and dividend policy. Only for small firms there is a significant negativerelationship between dividend payouts and family ownership up to 10% of the company’s stock and a positive relationship for family ownership between 10 and 35%. Dividend payouts in small firms also show little sensitivity to performance. Finally, the composition of the board of directors (proportion of independent non-executive directors, outsider-dominated board, presenceof audit committees) has little impact on firm performance and dividend policy, particularly for small market capitalization firms. Our results for Hong Kong are in line with both Demsetz and Lehn (1985) [Demsetz, H., Lehn, K., 1985. The structure of corporate ownership: causes and consequences. Journal of Political Economy 93, 1155–1177] and Himmelberg et al. (1999)[Himmelberg, C.P., Hubbard, R.G., Palia, D., 1999. Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics 53. 353–384], who show that concentrated ownership is not associated with better operating performance or higher firm valuation.