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How do talented managers view dividend policy? Further evidence from Chinese equity market

How do talented managers view dividend policy? Further evidence from Chinese equity market The purpose of this paper is to examine the importance of market imperfection, namely, variation in managerial ability (MA), on dividend policy in China. The authors focus on the Chinese market as it is dominated by state-owned enterprises and test whether the association between MA and dividend policy varies systematically with the degree of state ownership.Design/methodology/approachTo measure MA, this study exploits a novel measure developed by Demerjian et al. (2012) to estimate how efficiently manager utilizes firm’s resources. Manager efficiency is defined in terms of output a manager produces based on inputs available within firm.FindingsThe authors find that relationship between MA and dividend policy is primarily driven by non-state own enterprises compare to state own enterprises, more prevalent for financially unconstrained firms with strong balance sheet and more pronounced under high marketized groups as compare to low marketized groups. These finding are robust under battery of robustness checks. This research adds new insight for the policy makers and investors to pay more attention on MA.Practical implicationsThis research adds new insight for the policy makers and investors to pay more attention on MA.Originality/valueThis study augments the dividend policy literature by relaxing perfect capital market assumption of Miller and Modigliani, and neo-classic view of firms by incorporating a new novel factor – variation in MA – and applies it to the emerging market of China. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Emerging Markets Emerald Publishing

How do talented managers view dividend policy? Further evidence from Chinese equity market

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References (104)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1746-8809
DOI
10.1108/ijoem-03-2019-0179
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to examine the importance of market imperfection, namely, variation in managerial ability (MA), on dividend policy in China. The authors focus on the Chinese market as it is dominated by state-owned enterprises and test whether the association between MA and dividend policy varies systematically with the degree of state ownership.Design/methodology/approachTo measure MA, this study exploits a novel measure developed by Demerjian et al. (2012) to estimate how efficiently manager utilizes firm’s resources. Manager efficiency is defined in terms of output a manager produces based on inputs available within firm.FindingsThe authors find that relationship between MA and dividend policy is primarily driven by non-state own enterprises compare to state own enterprises, more prevalent for financially unconstrained firms with strong balance sheet and more pronounced under high marketized groups as compare to low marketized groups. These finding are robust under battery of robustness checks. This research adds new insight for the policy makers and investors to pay more attention on MA.Practical implicationsThis research adds new insight for the policy makers and investors to pay more attention on MA.Originality/valueThis study augments the dividend policy literature by relaxing perfect capital market assumption of Miller and Modigliani, and neo-classic view of firms by incorporating a new novel factor – variation in MA – and applies it to the emerging market of China.

Journal

International Journal of Emerging Markets – Emerald Publishing

Published: Apr 24, 2020

Keywords: Emerging markets; Board composition; Dividend policy; Managerial ability; G30; G34; G35

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