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Dividend tunneling and joint expropriation: empirical evidence from China's capital market

Lv, Huaili; Li, Wanli; Gao, Simon S


Huaili Lv

Wanli Li


This paper examines the association between cash dividends and the shareholders balancing mechanism (SBM) using the exogeneity and endogeneity assumptions of corporate ownership structure. This paper identifies, in the case of China, whether paying cash dividends is a means of protection or expropriation of minority shareholders’ interests. With 4810 observations from companies listed on the Shanghai Stock Exchange over the period 2004–2008, the authors find significant negative associations between cash dividend payments and the SBM of non-controlling large shareholders under the exogeneity assumption and the SBM of tradable shareholders under the endogeneity assumption. The findings suggest that cash dividends are used as a manner of tunneling by the controlling shareholder. This paper also shows that the SBM of non-controlling shareholders has a significant positive effect on cash dividends, especially for companies paying high and abnormal dividends. The results imply that in China's capital market, cash dividend payments are not only expropriations of minority shareholders’ interests by the controlling shareholder but also coalitions of controlling and non-controlling large shareholders. The findings confirm the tunneling and joint expropriation incentive of corporate dividend policy


Lv, H., Li, W., & Gao, S. S. (2012). Dividend tunneling and joint expropriation: empirical evidence from China's capital market. European Journal of Finance, 18, 369-394.

Journal Article Type Article
Publication Date 2012
Deposit Date Jan 23, 2012
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Routledge
Peer Reviewed Peer Reviewed
Volume 18
Pages 369-394
Keywords corporate ownership; dividend tunneling; joint expropriation; shareholders coalition; shareholders balancing mechanism;
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