Corporate governance and dividend policy: A comparison of Chinese firms listed in Hong Kong and in the Mainland

This study compares the cash dividend policy of Chinese firms listed in Hong Kong and on the Mainland. It shows that, in both groups, firms that have higher managerial membership on the board tend to pay lower cash dividends. The relation is stronger in Mainland-listed firms, indicating that managersʹ influence on the board creates more serious agency problems. This study further shows that ownership concentration of Mainland-listed firms tends to weaken the association between managerial membership on the board and lower cash dividends, suggesting that concentrated ownership in the Mainland reduces the agency cost. Finally, this study shows that there is a price premium attaching to dividend payout of HK-listed Chinese firms, but there is no such premium in the Mainland market. Further, the same dividend premium is also observed in local firms listed in Hong Kong. Taken together, this study indicates that the pricing mechanism of Hong Kongʹs equity market appears to encourage managers of HK-listed firms to pay dividends. The same mechanism is not found to exist in the Mainland market. This difference helps to explain the finding that the controlling shareholders of HK-listed firms take a less active role in dividend policy than those of their peers on the Mainland. Thus, Hong Kongʹs equity market seems to provide a mechanism that can be used by Chinese firms listed there.