Abstract: In response to the mandatory dividend policy, central SOE's parent companies tend to transmit their dividend pressure to their subsidiaries and this may cause rent-seeking behavior of division managers. Taking listed central SOEs as the treatment group and comparable listed private companies as the control group, this paper uses gradual DID model to explore the impact of mandatory dividend policy on the innovation activities of subsidiaries from the perspective of rent-seeking division managers. It is found that after the implementation of mandatory dividend policy, division managers have the motivation to alleviate the dividend pressure by increasing innovation input, and this motivation increases with the rise of dividend proportion. The pressure of performance appraisal and certain equity incentive to subsidiary managers can alleviate the rent-seeking behavior of division managers. Further research shows that the mandatory dividend policy does not improve the innovation output of enterprises while increasing innovation input, but reduces the innovation efficiency of enterprises. This paper provides new empirical evidence for economic consequence of mandatory dividend policy and innovation in business group.

Key words: mandatory dividend policy, business group, division manager rent-seeking, enterprise innovation