Financial Constraint and Corporate Payout Policies : Evidence from a Natural Experiment in China

The paper attempts to study the insufficiency of corporate dividend payout in China from the perspective of financial constraint. The three financial constraint indexes are constructed to study the influence of financial constraint on corporate payout behavior. Furthermore, the issuance of short-term bond in 2005 is used as a natural experiment to deal with the endogenous problem that could be came cross in the econometric models. Our findings reveal that financial constraint is a key element to explain the low corporate payout ratio, and furthermore the huge corporate saving in China. If the financial constraint is more intensified, then the corporate payout ratio will be more insufficient. Moreover, the advent of short-term bond indeed has an impact on the corporate payout behavior, and thus increases the corporate payout ratio about 1.5%