How does privatization affect cash dividends? Quasi-experimental evidence from China.

Against the backdrop of privatization experienced by Chinese state-owned enterprises (SOEs) in recent years, this study investigates how privatized firms change cash dividend payments. Using a difference-in-differences (DiD) research design, we find an increase in cash dividends following privatization. Additional analyses reveal two channels underlying the increase in dividend payouts – that is, reduced insider tunnelling and agency problems associated with cash holding, and improved information environment after privatization. Our findings enrich the literature on privatization by providing new insights into the underlying mechanisms explaining the increased cash dividends from the agency theory and information environment perspectives. • China has deepened the privatization of its SOEs in recent years. • The privatization process allows a difference-in-differences research design. • We find that privatized firms increase cash dividends following the privatization. • Reduced insider tunnelling and free cash flow problem explain the increase. • Enhanced information environment post privatization also explains the increase. [ABSTRACT FROM AUTHOR]