Controlling shareholder share pledging and firm cash dividends

The study examines how share pledging behavior of controlling shareholder affects the corporate payout policy using the unique setting of Chinese market from 2008 to 2015. According to the study result, cash dividend payments for firms with shares pledged by controlling shareholders are significantly decreased relative to those without shares pledged, and the effect is stronger for non-state-owned enterprises (non-SOEs), firms with more related party transactions, and pledged shares with more magnitude, frequencies and maturity. Overall, these findings suggest that induced by the share pledging activity, controlling shareholders can obtain private benefits without considering benefits of outside shareholders.