Abstract: Relationship between product market competitions, controlling shareholders cash dividend distribution tendency and cash dividend policy are empirically studied in this paper by taking unbalanced panel data of 4093 companies listed on Shanghai and Shenzhen Stock Exchanges as esperiment data. The results show that controlling shareholder has a significant tendency of cash dividend distribution and the tendency is not impacted by nature of shareholders significantly. However, further studies show that the tendency is significant under the high-level of product market competition condition. The controlling shareholders tend to pay more cash dividends with the increase of product market competition. The result is explained by agency theory and dividend "hollowed out" theory and it implies that the product market competition plays a good role of external governance mechanism, which can effectively inhibit the moral hazard of managers and the controlling shareholders' tunneling behaviors of the other forms except dividend distribution.

Key words: product market competition, dividends policy, controlling shareholders, free cash flow hypothesis, tunneling hypothesis