Abstract: Based on the institutional background of government regulation on state owned enterprises, this paper conducts an empirical test on the relationship between government regulation and the financial decisions of state-owned enterprises, the dividend irrelevance theory and the hypothesis of managerial myopia by making use of the data of China’s state-owned listed companies from 2008 to 2015. The findings show that the regulation has distorted the financial decisions of the state-owned enterprises; the state-owned enterprises with lower degree of government regulation have stronger dividend paying intension and higher dividend paying level. Further study reveals that the enterprises controlled by the central government are more involved in R&D activities than the local state-owned enterprises; and the state-owned enterprises with stronger willingness to pay dividends and higher proportion will make more R&D decisions, the proportion of innovation investment is also higher. The central government’s control has strengthened the relationships between the two. These study results have rejected the dividend irrelevance theory and the hypothesis of managerial myopia, and have provided support to the implementation of standards for the R&D costs conditional capitalization. This study also provides empirical evidences to the relevant contents of the Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Deepening the Reform of State-Owned Enterprises and policy suggestions for further deepening the reform of state owned enterprise.

Key words: government regulations; dividend of SOEs; enterprise innovation