Do non-profit minority institutional shareholders influence cash dividends? Empirical evidence from quasi-natural experiments in China

Abstract

Dividends allow shareholders to receive investment returns; however, Chinese listed companies are often reluctant to share profits with external minority shareholders, instead channeling funds into “tunneling” activities of major shareholders. By examining the China Securities Investor Service Center (CSISC), this study finds that, following CSISC shareholding, cash dividends significantly increase in companies with lower original dividends. Mechanism tests reveal that CSISC shareholdings increase cash dividends by improving internal control quality and enhancing minority shareholder participation in annual general meetings. Furthermore, the effect of CSISC shareholding on dividend increases is more pronounced in companies where the wedge between the controlling shareholder's control rights and ownership is smaller, and this effect is influenced by political connections. In addition, CSISC shareholdings help address reduced dividends due to insufficient external corporate monitoring.