Pay more or pay less? The impact of controlling shareholders' share pledging on firms' dividend payouts

We investigate the relationship between controlling shareholders' share pledging and firms' cash dividend payout policies. Using Chinese A-share market data, we find that firms with share-pledging controlling shareholders pay less cash dividend and this effect is more pronounced among firms with severer agency problems and with weaker internal or outside monitoring. Further, we find that share-pledging firms are inclined to transfer more reserve to common shares, but pay no more stock dividend. Moreover, share pledging firms are associated with more controlling shareholders' expropriation through tunneling. Our combined findings imply that share pledging diminishes controlling shareholders' cash flow right, which aggravates the agency conflicts between controlling shareholders and minority shareholders, and thereby negatively impacts firms' cash dividend.