External finance and dividend policy: a twist by financial constraints

Zhong He, Xiaoyan Chen, Wei Huang, Rulu Pan, Jing Shi

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)


This study assesses distorting effect of financial constraints on the inverse relationship between internal and external finance by examining impact of an exogenous financing shock (i.e. a regulation released in China in 2008) on dividend policies in a quasi-natural experimental setting. Our result shows that in the absence of the regulation, the inverse relationship holds. However, the relation is twisted by the 2008 regulation. Compared with unconstrained firms, financially constrained firms are more willing to pay dividends and are more restrained to reduce cash dividends after the regulation, despite the fact that their external financing capacities are further constrained.
Original languageEnglish
Pages (from-to)935-959
Number of pages25
JournalAccounting and Finance
Issue number4
Publication statusPublished - Dec 2016
Externally publishedYes


  • Dividend policy
  • External finance
  • Financial constraint


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