Degree Name

Doctor of Philosophy (Integrated)


School of Accounting, Economics and Finance


Different from agency conflicts between managers and investors (Jensen & Meckling, 1976), interest conflicts between controlling and minority shareholders tend to prevail facing a concentrated ownership structure (Faccio et al., 2010). Notably, the problem of firm resources being transferred to controlling parties is described as tunnelling (Johnson et al., 2000).

In China, cash dividends are argued to be tunnelled by controlling shareholders who had discounts for the subscription of non-tradable shares (Chen et al., 2009a). My study adds further evidence by investigating the influence on dividends of the non-tradable share (NTS) reform. Different from previous studies, I also consider the heterogeneity of state and non-state shareholders.

Zhao et al. (2015) argue that cash dividends issued after private placements also expose to tunnelling, especially with the subscription of controlling shareholders. Yet, to preserve such an argument, further examination of the information effect of private placements (Hertzel & Smith, 1993) and the incentive held by participating shareholders (Wruck, 1989; Barclay et al., 2007) appears necessary.

Whether controlling shareholders view dividends as an option of interests transfer and whether events concerning controlling shareholders’ holdings alter their attitude towards dividends motivate this research. These issues are addressed via the following studies.

Using the NTS reform as an experimental setting, the first study of this thesis looks into whether cash dividends are subject to influences of agency conflicts and capital constraints associated with controlling shareholders. The result shows that dividends decreased after the reform. This is in line with i) a reduced incentive to use dividends to “materialise” non-tradable holdings and ii) a stronger alignment between controlling and minority shareholders via the united pricing of their holdings. The implications of the heterogeneity of controlling shareholders are examined next. The evidence shows that state-owned enterprises (SOEs) directly controlled by capital-constrained local governments pay higher dividends, suggesting a potential remedy for local governments’ lack of income. Yet, family firms are shown to be reluctant to pay dividends, possibly because of the tendency to transfer interests via excessive cash holdings (Liu et al., 2015). It is inferred that controlling shareholders would be inclined to demand (suppress) payouts if higher (lower) cash dividends better serve their personal interests.

My second study examines the impact of private placements on cash dividends using a multivariate difference-in-difference approach. Contrary to Zhao et al. (2015), my results show that the placements reduce dividends. Further investigation reveals that private placements enhance long-term stock performance. The opposite directions of treatment effects on dividends and firm performance are in line with Hail et al. (2014); an enhancement in the information environment, in this case private placements (Hertzel & Smith, 1993), lowers the need to signal profitability via dividends. I also find that private placements result in higher announcement returns of dividends. This further corroborates the signalling function of private placements, as an improved information environment is shown to emphasise the announcement effect of dividends (Dedman et al., 2015).

My third study addresses how participating investors’ affiliations with issuing firms and offering discounts relate to post-offering dividends. Tracing 120 days after announcements of private placements, I find that higher discounts for controlling shareholders lead to better stock performance. This reflects the optimism of the market. Further results document higher payouts, greater earnings and better corporate governance when larger discounts are received by controlling shareholders. This implies that discounts granted to controlling shareholders could be the reward for incremental monitoring (Wruck, 1989).

Overall, this thesis examines whether dividends are exposed to tunnelling by controlling shareholders. Though the discount of controlling shareholders’ non-tradable holdings once pointed to dividends as fund transfer, it seems that this tendency was restrained after the NTS reform. Despite the concern that private placements inviting controlling shareholders cause aggravated agency conflicts, when examining the post-offering practice, evidence indicates higher discounts granted to existing controlling shareholders result in higher dividends accompanied by greater earnings. This thesis points to incremental monitoring provided by existing controlling shareholders as the most likely explanation. In general, this thesis suggests that following the NTS reform, controlling shareholders have a weak incentive towards tunnelling via dividends. Also, controlling shareholders’ impact on dividends could be influenced by their governance intentions and financial capability.

FoR codes (2008)

150201 Finance, 150202 Financial Econometrics



Unless otherwise indicated, the views expressed in this thesis are those of the author and do not necessarily represent the views of the University of Wollongong.