Abstract

Based on unbalanced panel dates of 4060 companies listed from 2003 - 2007 in Shanghai and Shenzhen Stock Markets, this paper empirically studies the degree of product market competition, the relationship between cash dividends distribution tendency and cash dividends policy. Results show that controlling shareholders have significant motivation to distribute cash dividends, and this kind of incentive is not significantly influenced by nature of shareholders. Product market competition can weaken the motivation of cash dividends distribution, and promote companies to reserve more cash for operation. This study shows that the product market competition plays a good role of external governance mechanism, and can effectively curb the controlling shareholders for “empty” companies through cash dividends.