Elective Stock and Scrip Dividends

Isabel Feito Ruiz, Luc Renneboog, Cara Vansteenkiste

Research output: Working paperDiscussion paperOther research output

83 Downloads (Pure)

Abstract

We investigate firms’ decisions to pay elective stock dividends, known in the UK as scrip dividends. Scrip dividends give investors the choice between receiving new shares or the equivalent value as a cash dividend. UK firms paying scrip dividends are more likely to be financially constrained, and scrip dividends are used more when access to external financing is costly. Our results are robust to using the 2008 financial crisis as an exogenous shock to credit supply. Cash preservation is the most important corporate incentive to use scrip dividends as they tend to be distributed in combination with dividend cuts and with major corporate investments such as debt-financed mergers and acquisitions. Analysis of US dividend reinvestment plans by which investors purchase new shares confirms firms’ cash-preservation motives.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages48
Volume2018-031
Publication statusPublished - 6 Sep 2018

Publication series

NameCentER Discussion Paper
Volume2018-031

    Fingerprint

Keywords

  • stock dividends
  • scrip dividends
  • elective stock dividend
  • optional stock dividend
  • dividend policy
  • payout policy
  • crisis
  • dividend reinvestment plans
  • DRP
  • financial constraints
  • financial crisis
  • cash retention
  • mergers and acquisitions

Cite this

Feito Ruiz, I., Renneboog, L., & Vansteenkiste, C. (2018). Elective Stock and Scrip Dividends. (CentER Discussion Paper; Vol. 2018-031). Tilburg: CentER, Center for Economic Research.