Political Connections and Firm’S Dividend Policy: Evidence from Chinese Privately Owned Firms

Abstract

This paper examines the effect that political connections have on firm’s dividend policy of Chinese private owned firms. We find that political connections have negative relationship on firm’s dividend ratios and probability of dividend payout. We also find that such relationship is dominated by politically connected chairman rather than general manager (CEO). Our findings indicate that both political connections and lower dividend payout in previous year result more expropriation from controlling shareholder. We argue that political connections, especially politically connected chairmen encourage expropriation from controlling shareholder by providing external protection to such behaviour. Therefore, political connections impair corporate governance and the interest of minority shareholders.