Multiple large shareholders and dividends: Evidence from China

Faccio et al. (2001) find that when East Asian firms have multiple large shareholders, they will collude to expropriate wealth and withhold dividend payouts. However, when it becomes difficult for large shareholders to expropriate wealth through activities like tunneling, large shareholders may then need dividends to fund personal cash flow needs. Thus, they may cooperate to make firms pay dividends and pay large dividends. To test this hypothesis, we study Chinese listed firms. Consistent with our contention, we find that firms with multiple large shareholders are more likely to pay dividends and pay large dividends. These activities are especially prevalent after restrictions were placed on tunneling. We also find that dividend payouts and large payouts are more likely when the largest shareholder needs the cooperation of other blockholders to exert control over dividend payout policy, and when multiple blockholders are of the same identity.