State Controlling Shareholders and Payout Policy

We study the role of state controlling shareholders in corporate payout policy. The State Capital Operation Program in China requires parent central state-owned enterprises (CSOEs) to contribute part of their consolidated income to a new fiscal fund. We find that listed CSOEs, partially controlled by parent CSOEs, experience significant reductions in dividend payouts as the income-contribution ratio increases. The dividend reductions are concurrent with increases in intragroup resource transfers-listed CSOEs' loans to, and commercial trades with, group peers. The program yields adverse consequences for listed CSOEs' investment and employment, yet being mitigated by group-level dividend reductions.