The role of managerial ownership in dividend tunneling: Evidence from China

Huan Bian; Jing‐Ming Kuo; Hui Pan; Zhuang Zhang

doi:10.1111/corg.12478

journal article Open Access Jul 08, 2022

The role of managerial ownership in dividend tunneling: Evidence from China

Huan Bian

Jing‐Ming Kuo

Hui Pan

Zhuang Zhang

Corporate Governance: An International Review Vol. 31 No. 2 pp. 307-333 · Wiley

View at Publisher Save 10.1111/corg.12478

Abstract

AbstractResearch Question/IssueWe examine the role of corporate executives in dividend tunneling activity by controlling shareholders and whether the correlation between executive ownership and dividend tunneling is influenced by internal and external governance mechanisms.Research Findings/InsightsWe find increased executive ownership may lead to a higher level of dividend tunneling. This is further strengthened by our finding that the positive effect of executive ownership on dividend tunneling is more pronounced for firms with weaker minority shareholder protection. In addition, our results show that higher degrees of state ownership may further intensify this positive association. Finally, we find that analyst coverage has a moderating effect and constrains the collusion between controlling shareholders and executives in dividend tunneling activity.Theoretical/Academic ImplicationsOur study contributes to the literature on the role of managerial ownership in controlling shareholders' dividend tunneling activity. We fill a gap in the literature on the corporate agency problem by providing evidence that dividends have been employed by controlling shareholders as a means of tunneling and that executives with higher ownership are more likely to collude with controlling shareholders in dividend tunneling activities.Practitioner/Policy ImplicationsThis study contributes to the debates around the promotion of the cash dividend policy in China, as our findings show that cash dividends are used as a tunneling vehicle. Providing important evidence to regulators, our findings support the argument that external monitoring by financial analysts can effectively constrain dividend tunneling by dominant shareholders, especially in the context of emerging stock markets with high ownership concentration, weak minority shareholder protection, and an underdeveloped legal system.

Topics

No keywords indexed for this article. Browse by subject →

References

101

[1]

10.1111/1467-8551.12113

[2]

10.1016/j.jaccpubpol.2009.10.003

[3]

Law, finance, and economic growth in China

F ALLEN, J Qian, M QIAN

Journal of Financial Economics 10.1016/j.jfineco.2004.06.010

[4]

10.1007/s11156-012-0340-x

[5]

10.1016/j.jcorpfin.2018.10.004

[6]

10.1016/j.jce.2004.07.002

[7]

10.1111/j.1540-6261.2004.00658.x

[8]

10.1111/j.1745-6622.1995.tb00259.x

[9]

10.1111/corg.12131

[10]

10.1016/j.jbankfin.2007.11.001

[11]

10.1016/j.jcorpfin.2019.07.003

[12]

10.1111/corg.12184

[13]

10.2308/accr.2010.85.4.1239

[14]

10.1111/1540-6229.00757

[15]

10.1111/j.0045-3609.2005.00022.x

[16]

10.1111/j.1540-6261.2007.01261.x

[17]

10.1016/j.jfineco.2005.03.010

[18]

10.1016/j.pacfin.2008.05.002

[19]

10.1111/1475-679x.12195

[20]

10.1016/s1755-3091(13)60020-9

[21]

10.1007/s11156-019-00846-z

[22]

10.1016/s0014-2921(98)00119-6

[23]

10.1016/j.jfineco.2011.04.002

[24]

Executive compensation and corporate governance in China

Martin J. Conyon, Lerong He

Journal of Corporate Finance 10.1016/j.jcorpfin.2011.04.006

[25]

10.1016/s0304-405x(02)00127-7

[26]

Staggered boards and long-term firm value, revisited

K.J. Martijn Cremers, Lubomir P. Litov, Simone M. Sepe

Journal of Financial Economics 10.1016/j.jfineco.2017.08.003

[27]

10.2307/3665795

[28]

10.1016/j.intaccaudtax.2012.01.001

[29]

Earnings Management to Exceed Thresholds

Francois Degeorge, Jayendu Patel, Richard Zeckhauser

The Journal of Business 10.1086/209601

[30]

10.1111/j.1540‐6261.1997.tb03811.x

[31]

10.1016/s0304-405x(97)00016-0

[32]

10.1257/aer.91.1.320

[33]

Ding R. Hou W. Kuo J.‐M. &Lee E.(2013).Does analyst coverage affect share price informativeness of Chinese listed firms. Working Paper.https://doi.org/10.2139/ssrn.2221675 10.2139/ssrn.2221675

[34]

10.1016/j.pacfin.2012.10.001

[35]

10.1016/j.jfineco.2009.12.008

[36]

10.1111/j.1540-6261.2010.01614.x

[37]

Easterbrook F. H. "Two agency‐cost explanations of dividends" The American Economic Review (1984)

[38]

10.1257/aer.91.1.54

[39]

Risk, Return, and Equilibrium: Empirical Tests

Eugene F. Fama, James D. MacBeth

Journal of Political Economy 10.1086/260061

[40]

10.1016/j.jfineco.2006.03.008

[41]

10.1016/s0165-4101(02)00047-2

[42]

The relation between dividends and insider ownership in different legal systems: international evidence

Jorge Farinha, Óscar López-de-Foronda

The European Journal of Finance 10.1080/13518470802588718

[43]

10.1016/j.jcorpfin.2005.03.002

[44]

10.1111/j.1467-6486.2006.00621.x

[45]

10.1016/j.jbusres.2007.01.014

[46]

10.1016/j.jaccpubpol.2007.05.004

[47]

10.1016/j.jbankfin.2016.01.009

[48]

10.1016/j.jcorpfin.2012.01.004

[49]

10.1016/j.ejor.2014.08.031

[50]

10.1016/j.jfineco.2016.09.011

Showing 50 of 101 references

Metrics

32

Citations

101

References

Details

Published: Jul 08, 2022
Vol/Issue: 31(2)
Pages: 307-333
License: View

Authors

H

Huan Bian

Huarong Fund Management Co. Ltd. Beijing China

J

Jing‐Ming Kuo

Birmingham Business School University of Birmingham Birmingham UK

H

Hui Pan

Coventry Business School Coventry University Coventry UK

Z

Zhuang Zhang

Southampton Business School University of Southampton Southampton UK

Cite This Article

Huan Bian, Jing‐Ming Kuo, Hui Pan, et al. (2022). The role of managerial ownership in dividend tunneling: Evidence from China. Corporate Governance: An International Review, 31(2), 307-333. https://doi.org/10.1111/corg.12478

The role of managerial ownership in dividend tunneling: Evidence from China

You May Also Like