Unintended benefits of mandatory dividend regulations on investment efficiency: evidence from China

We investigate the unintended benefits of mandatory dividend payout regulations for Chinese listed firms seeking refinancing to enhance their investment efficiency, even though the initial intention of these regulations is to protect powerless external minority shareholders. We find that, while these regulations mitigate the overinvestment of all listed firms, this effect is more pronounced among refinancing firms than among non-refinancing firms. We further find evidence partially showing that the mitigating effect of these regulations on overinvestment is driven mainly by state-owned enterprises (SOEs). These findings suggest dividend payout regulations are used to partially ameliorate Chinese listed firms’ investment inefficiency, particularly those of SOEs.