Corporate Finance and State Enterprise Reform in China

Abstract

This paper uses a novel approach in addressing two puzzles in the field of corporate finance in China, where government is a major player. In addition to the traditional approach based on agency theory and information asymmetry, the paper uses the political costs approach in studying the stock dividend puzzle and rights issues puzzle. The paper finds that the extent of political interference, managerial entrenchment and institutional control affect corporate financing choices and dividend distribution decisions. The result sheds new light on improving the important corporate finance aspects of state enterprise reform in China.