Does quasi-mandatory dividend rule restrain overinvestment?
Chunfei Wang and
International Review of Economics & Finance, 2019, vol. 63, issue C, 4-23
We study the impact of a quasi-mandatory dividend rule on restraining corporate overinvestment in China. In 2008, the Chinese government adopted a regulation mandating that publicly listed firms pay out a minimum of 30% of their average earnings over the preceding 3 years as cash dividends before the firms can apply for SEOs. The 30% Rule in China is unique in the sense that it applies only to firms applying for SEOs. Our findings suggest that firms paying small dividends (but not meeting the 30% Rule) better restrain their overinvestment after the 30% Rule than the control firms. The 30% Rule, while meant to encourage firms to pay more dividends, pushes small-dividend firms to improve their investment efficiency by lowering the extent of overinvestment. For firms paying no dividends, we find that, after implementation of the 30% Rule, their overinvestment increases. Finally, we document that the impact of the 30% Rule on restraining overinvestment among small-dividend firms is attenuated if they have bad agency problems. Our findings offer policy implications for other emerging markets considering adopting mandatory dividend regulations.
Keywords: Mandatory dividend rule; Agency problem; Overinvestment (search for similar items in EconPapers)
JEL-codes: G28 G35 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:63:y:2019:i:c:p:4-23
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().