Effective Discipline with Adequate Autonomy : The Direction for Further Reform of China's SOE Dividend Policy

Effective Discipline with Adequate Autonomy : The Direction for Further Reform of China's SOE Dividend Policy

This note explores the desirable direction for further reform of China's state-owned enterprise (SOE) dividend policy. This study represents an effort in exploring the desirable direction for further reform. It is an extension of the previous...

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Bibliographic Details
Main Authors:	Zhang, Chunlin, Wang, Lihong
Format:	Policy Note
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCOUNTANT ACCOUNTING ADMINISTRATIVE COST ADVANCED ECONOMIES AGENCY COSTS AGENCY PROBLEM AGENCY PROBLEMS AIR AIRLINE COMPANIES AIRLINE INDUSTRY AIRPORT AIRPORTS ASSET MANAGEMENT ASSETS AUTOMOBILE BAD DEBT WRITE-OFF BANK BORROWING BOND BOND ISSUANCE BONDHOLDERS BROADCASTING SYSTEM BUDGETARY ALLOCATION BUDGETING CAPITAL BASE CAPITAL FORMATION CAPITAL GAINS CAPITAL INJECTION CAPITAL INVESTMENT CAPITAL INVESTMENTS CAPITAL MARKET CAPITAL MARKETS CAPITAL REQUIREMENTS CAPITAL STRUCTURE CASH FLOW CASH FLOWS CASH PAYMENT CASH PAYMENTS CASH TRANSFER CIVIL LAW COMMON LAW COMMON LAW COUNTRIES COMMON STOCK COMPANY LAW CORE BUSINESS CORPORATE DIVIDEND CORPORATE DIVIDEND POLICIES CORPORATE INSIDERS DEBT DEREGULATION DISTRIBUTION OF INCOMES DIVERSIFIED PORTFOLIO DIVESTMENTS DIVIDEND DIVIDEND PAYMENT DIVIDEND PAYOUT DIVIDEND PAYOUT RATIO DIVIDEND POLICIES DIVIDEND POLICY DIVIDEND SMOOTHING DIVIDEND YIELD DIVIDENDS ECONOMIC VALUE ADDED EQUITY CAPITAL EQUITY HOLDERS EQUITY STAKES EXPENDITURE EXPENDITURES EXPROPRIATION EXTERNAL FINANCING FINANCIAL CRISIS FINANCIAL RESOURCES FINANCIAL SITUATION FINANCIAL STATEMENTS FINANCING ARRANGEMENTS GOVERNMENT BUDGET GOVERNMENT OWNERSHIP GRACE PERIOD GROWTH RATE HOLDINGS INCOME INFORMATION ASYMMETRY INSTITUTIONAL FRAMEWORK INSTRUMENT INSURANCE INSURANCE COMPANIES INTERNAL FINANCING INTERNATIONAL FIRMS INVESTMENT DECISIONS INVESTMENT EFFICIENCY INVESTMENT OPPORTUNITIES INVESTMENT OPPORTUNITY INVESTMENT PROJECTS JUDGMENT JURISDICTION LARGE SHAREHOLDERS LEGAL POWER LIQUIDATION LOCAL GOVERNMENTS LOSS-MAKING MARKET CAPITALIZATION MARKET COMPETITION MARKET ECONOMIES MARKET ECONOMY MARKET INFORMATION MARKET MANIPULATION MARKET SHARE MARKET VALUE MARKET VALUE OF EQUITY MATURITY MINORITY SHAREHOLDERS MONOPOLY NATIONAL BUDGET NEGOTIATION NET PROFIT NET PROFITS NPV OPEN MARKET OPPORTUNITY COST OWNERSHIP RIGHTS OWNERSHIP STRUCTURE PARENT COMPANIES PENALTY PORTFOLIO PRIVATIZATION PROFITABILITY PROTECTION OF MINORITY SHAREHOLDERS PUBLIC COMPANY PUBLIC SPENDING RAIL RAILWAYS REAL ESTATE REDEMPTION VALUE REGULATORS REGULATORY BODIES REINVESTMENT REPO RESERVES RETAINED EARNINGS RETURN RETURNS RISKY INVESTMENT SALARY SECURITIES SECURITIES EXCHANGE SETTLEMENT SHAREHOLDER SHAREHOLDER VALUE SHAREHOLDERS SHAREHOLDERS MEETING SHAREHOLDING SHARES OUTSTANDING STATE OWNED ENTERPRISE STATE OWNED ENTERPRISES STATEMENT STOCK EXCHANGE STOCKS TARGET DIVIDEND TARGET PAYOUT RATIO TAX TAX RATE TELECOMMUNICATIONS TOTAL MARKET CAPITALIZATION TRADE POLICY TRANSACTION TRANSACTION COST TRANSPORT TRANSPORTATION TREASURY TRUE VALUATION WEAK CORPORATE GOVERNANCE
Online Access:	http://documents.worldbank.org/curated/en/2009/11/11880532/effective-discipline-adequate-autonomy-direction-further-reform-chinas-soe-dividend-policy http://hdl.handle.net/10986/18902

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Summary:	This note explores the desirable direction for further reform of China's state-owned enterprise (SOE) dividend policy. This study represents an effort in exploring the desirable direction for further reform. It is an extension of the previous World Bank studies (World Bank, 2005, 2007) on this subject. It argues that a sound dividend policy must generate effective discipline against insiders and leave adequate managerial autonomy to them in the meantime. Considering China's current situation in light of relevant international experience, this study recommends three actions for the government to take to deepen the reform. The first is to raise the flexibility of SOE dividend ratio by adding a dividend ratio determination mechanism to the existing system of state ownership function. The second involves government monitoring and adjustment of the average dividend ratio of all central SOEs. The third is to start integrating state capital management budget (SCMB) with the general budget. The rest of the note is organized as follows. Section two discusses the nature of the issue and the criteria that a sound dividend policy must meet. Section three-five reviews payout practices of private sector firms (mainly publicly held companies but also include privately held firms), non-Chinese SOEs, and Hong Kong listed Chinese SOEs. Section six presents recommendations regarding the direction for further reform.

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