Dividends and tunneling: evidence from family firms in China

The purpose of this paper is to empirically analyze the motive of family‐controlled firms to pay cash dividends in China.

Using some econometrical models, the paper designs and conducts a series of empirical research on cash dividends behavior, thus acquiring credible empirical data.

Using a sample of 204 family firms, the motive of family‐controlled firms to pay cash dividends was investigated. Dividend ratio was found to decrease with the separation of ultimate ownership and control right; this may reflect the tunneling motive of the family owners. Different from others, it was also found that high‐growth firms pay more dividends and that the family doing so may want to build a high reputation for the friendly treatment of minority investors for future financing.

The paper discusses investor protection matters in China.

The paper' findings provide policy implications for corporate governance reform and capital market development in China.