Mutual Funds’ Holdings and Listed Firms’ Dividend Payouts in China

Abstract

This paper investigates the relationship between mutual funds’ holdings and listed firms’ dividend policies in China. We find that mutual funds prefer to hold the shares of listed firms that pay cash or stock dividends. However, mutual funds are not particularly attracted to firms that pay high cash or high stock dividends. Further, listed firms tend to pay more cash or stock dividends after short-term focused mutual funds’ holdings increase. Long-term focused mutual funds only encourage listed firms to distribute more cash dividends through their shareholdings, but cannot significantly influence stock dividend rates. This maybe due to that a large stock dividend payment will have a negative impact on some key financial ratios, and have a negative impact on the liquidity, which would be a major concern for long-term mutual funds.