Financial Characteristics, Corporate Governance and the Propensity to Pay Cash Dividends of Chinese Listed Companies

Abstract

Employing 1056 A-share listed companies in Shanghai and Shenzhen Stock Exchanges from 2001 to 2007, we analyse empirically the influence of financial characteristics and corporate governance on propensity to pay cash dividends of companies. The result shows that in the related indexes of the financial characteristics of companies, the company size, cash flow, asset liquidity, profitability as well as whether cash dividends are paid in the previous year are positively correlated with propensity to pay cash dividends of companies. Investment opportunity and debt ratio are negatively correlated with the propensity to pay cash dividends of companies. Growth has uncertain influence on the propensity to pay cash dividends. In the corporate governance characteristics, existence of controlling shareholders, stateowned shareholder as the largest shareholder, the size of the board of directors, top-management compensation and listing factors in other markets are positively correlated with the propensity to pay cash dividends of companies. Tradable share ratio and CEO duality factor are negatively correlated with the propensity to pay cash dividends of companies. Independent director factor has uncertain influence on the propensity to pay cash dividends of companies. In general, financial characteristics shows that Chinese listed companies have the capability to pay cash dividends, but the corporate governance factors have negative influence on the cash dividend payment of listed companies.

Key words: The propensity to pay cash dividends; The company factor; Financial characteristics; Corporate governance