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In public firms, the largest shareholder can make decisions on cash dividends in favor of its own interests at the expense of other investors. While the second largest shareholder can actively participate in corporate governance and protect the interests of investors, its impact has not been fully understood. This research investigates how shareholding ratio and ownership type of the second largest shareholder moderate the relationship between controlling shareholder's shareholding ratio and cash dividends.

The authors conducted econometrics analysis based on a panel data of China's A-share listed companies from 2007 to 2017.

The authors find that the controlling shareholder's shareholding ratio has a significant negative impact on cash dividends. However, this influence is conditional on the shareholding ratio of the second largest shareholder. The negative impact is weakened when the second largest shareholder holds a large proportion of shares or when the shareholding gap between the second largest and the controlling shareholder is small.

This research extends the existing literature by highlighting the nuanced moderating effect of the second largest shareholder on the relationship between the controlling shareholder and cash dividends, thus making a unique contribution to the understanding of corporate governances in the emerging financial market in China.