Controlling Shareholders, Dividend Policy And Investor Protection

With the development of corporate governance-related research,the interest conflicts between controlling shareholders and small,diversified shareholders become the main agency problem,especially in the imperfect legal protection environment. Therefore,how to protect investors' rights attracts the attentions.Dividends have been paid as an important way to reduce agency costs.However,in unique institutional and legal settings,dividends can also be an instrument of controlling shareholders for expropriation.This paper investigates the dividend policy from the perspective of ultimate control rights and investor protection.Based on the agency theory,this paper analyzes the dividend policy made by the ultimate controlling shareholders in XiShui Strong Year Inner Mongolia Co.,Ltd.The control rights of this company have been transmitted from a state-owned enterprise to a private firm.Study shows that:(1) Whether dividends are distributed or not,it can mean that controlling shareholders are seeking rent from minority shareholders.(2) Dividend policy stands for the requirement of controlling shareholders,with little regard for others.(3) When ownership is low,ultimate shareholders of state or non-state entities have the same incentive of keeping retained earnings.They prefer to gain private benefits through other ways,instead of dividends payment.In this paper,the relationship between dividend policy and investor protection is evaluated from different perspectives.It's supposed to offer evidence of relevant theories,including agency theory and dividend theory.And it is also expected to make contributions to formulate the regulations.