State Controlling Shareholders and Payout Policy

We study the role of state controlling shareholders in corporate payout policy. We exploit as an exogenous event the State Capital Operation Program in China under which parent central state-owned enterprises (parent CSOEs) are required to partially contribute their income to a fiscal fund. We find that, upon the inception of the program, listed central state-owned enterprises (listed CSOEs) controlled by these parent CSOEs experience a significant reduction in dividend payouts. The reduction in dividend payouts is concurrent with an increase in intra-group capital flows: listed CSOEs’ loans to group peers and their commercial purchases from group peers. We conclude by showing that the payout reduction tends to be explained by parent CSOE managers’ career concerns and that such reduction hurts minority shareholders’ interests, manifested in a loss of firm value.