In times of crisis does ownership matter? Liquidity extraction through dividends during the 2007–2009 financial crisis

Wei Huang; John W. Goodell; Abhinav Goyal

doi:10.1016/j.intfin.2021.101380

In times of crisis does ownership matter? Liquidity extraction through dividends during the 2007–2009 financial crisis

Wei Huang, John W. Goodell^*, Abhinav Goyal

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

5 Citations (Scopus)

Abstract

Liquidity flow between regions with different levels of temporary financial constraints has received insufficient attention. This study takes advantage of a natural opportunity: Chinese capital markets clearly distinguish between foreign direct investment firms and firms with foreign institutional investment. Using the distinctive categorization of institutional holding structures in China, we find that foreign controlled enterprises were associated with an extraordinary increase in dividend payouts during the Global Financial Crisis, with concomitant underinvestment. Our results suggest that foreign-controlling shareholders extracted liquidity through dividends, highlighting a previously ignored channel for global transference of liquidity, with concomitant agency costs.

Original language	English
Article number	101380
Number of pages	21
Journal	Journal of International Financial Markets, Institutions and Money
Volume	73
Early online date	29 Jun 2021
DOIs	https://doi.org/10.1016/j.intfin.2021.101380
Publication status	Published - Jul 2021

Bibliographical note

Funding Information:
☆ The authors would like to thank for suggestions Jotikasthira Chotibhak, Douglas Cumming, Alex Edmans, Bill Megginson, and Raghu Rau and our colleagues for their comments on previous versions of this paper. We also thank the participants in the INFINITI conference on International Finance (Poznan, 2018), Reserve Bank of India's 8th Emerging Markets Finance Conference, (Mumbai, 2017), Academy of International Business Annual Conference (Dubai, 2017), and Eastern Finance Association Annual Meeting (Philadelphia, 2018), and seminar participants at University of Macau, Zhejiang University, Zhejiang University of Finance and Economics, and Tongji University. We are grateful to the author's respective institutions for financial support. We alone are responsible for any errors and the usual disclaimer applies.

Publisher Copyright:
© 2021 Elsevier B.V.

Keywords

Chinese capital markets
Dividends
Financial crises
Financial liquidity
Foreign direct investment
Foreign equity ownership

ASJC Scopus subject areas

Finance
Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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Cite this

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abstract = "Liquidity flow between regions with different levels of temporary financial constraints has received insufficient attention. This study takes advantage of a natural opportunity: Chinese capital markets clearly distinguish between foreign direct investment firms and firms with foreign institutional investment. Using the distinctive categorization of institutional holding structures in China, we find that foreign controlled enterprises were associated with an extraordinary increase in dividend payouts during the Global Financial Crisis, with concomitant underinvestment. Our results suggest that foreign-controlling shareholders extracted liquidity through dividends, highlighting a previously ignored channel for global transference of liquidity, with concomitant agency costs.",

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author = "Wei Huang and Goodell, {John W.} and Abhinav Goyal",

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AU - Huang, Wei

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AU - Goyal, Abhinav

N1 - Funding Information: ☆ The authors would like to thank for suggestions Jotikasthira Chotibhak, Douglas Cumming, Alex Edmans, Bill Megginson, and Raghu Rau and our colleagues for their comments on previous versions of this paper. We also thank the participants in the INFINITI conference on International Finance (Poznan, 2018), Reserve Bank of India's 8th Emerging Markets Finance Conference, (Mumbai, 2017), Academy of International Business Annual Conference (Dubai, 2017), and Eastern Finance Association Annual Meeting (Philadelphia, 2018), and seminar participants at University of Macau, Zhejiang University, Zhejiang University of Finance and Economics, and Tongji University. We are grateful to the author's respective institutions for financial support. We alone are responsible for any errors and the usual disclaimer applies. Publisher Copyright: © 2021 Elsevier B.V.

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N2 - Liquidity flow between regions with different levels of temporary financial constraints has received insufficient attention. This study takes advantage of a natural opportunity: Chinese capital markets clearly distinguish between foreign direct investment firms and firms with foreign institutional investment. Using the distinctive categorization of institutional holding structures in China, we find that foreign controlled enterprises were associated with an extraordinary increase in dividend payouts during the Global Financial Crisis, with concomitant underinvestment. Our results suggest that foreign-controlling shareholders extracted liquidity through dividends, highlighting a previously ignored channel for global transference of liquidity, with concomitant agency costs.

AB - Liquidity flow between regions with different levels of temporary financial constraints has received insufficient attention. This study takes advantage of a natural opportunity: Chinese capital markets clearly distinguish between foreign direct investment firms and firms with foreign institutional investment. Using the distinctive categorization of institutional holding structures in China, we find that foreign controlled enterprises were associated with an extraordinary increase in dividend payouts during the Global Financial Crisis, with concomitant underinvestment. Our results suggest that foreign-controlling shareholders extracted liquidity through dividends, highlighting a previously ignored channel for global transference of liquidity, with concomitant agency costs.

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In times of crisis does ownership matter? Liquidity extraction through dividends during the 2007–2009 financial crisis

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

UN SDGs

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