Elective Stock and Scrip Dividends

Isabel Feito Ruiz, Luc Renneboog, Cara Vansteenkiste

Research output: Working paperDiscussion paperOther research output

76 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

Dividends
Investors
Cash
Corporate investment
Exogenous shocks
Financial crisis
Mergers and acquisitions
Debt
Incentives
Stock dividends
External financing
Credit supply
Cash dividends
Purchase

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.
Feito Ruiz, Isabel ; Renneboog, Luc ; Vansteenkiste, Cara. / Elective Stock and Scrip Dividends. Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper).
@techreport{33035f926ee14eaf9a675af664edcbfa,
title = "Elective Stock and Scrip Dividends",
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.",
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",
author = "{Feito Ruiz}, Isabel and Luc Renneboog and Cara Vansteenkiste",
note = "CentER Discussion Paper Nr. 2018-031",
year = "2018",
month = "9",
day = "6",
language = "English",
volume = "2018-031",
series = "CentER Discussion Paper",
publisher = "CentER, Center for Economic Research",
type = "WorkingPaper",
institution = "CentER, Center for Economic Research",

}

Feito Ruiz, I, Renneboog, L & Vansteenkiste, C 2018 'Elective Stock and Scrip Dividends' CentER Discussion Paper, vol. 2018-031, CentER, Center for Economic Research, Tilburg.

Elective Stock and Scrip Dividends. / Feito Ruiz, Isabel; Renneboog, Luc; Vansteenkiste, Cara.

Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper; Vol. 2018-031).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Elective Stock and Scrip Dividends

AU - Feito Ruiz, Isabel

AU - Renneboog, Luc

AU - Vansteenkiste, Cara

N1 - CentER Discussion Paper Nr. 2018-031

PY - 2018/9/6

Y1 - 2018/9/6

N2 - 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.

AB - 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.

KW - stock dividends

KW - scrip dividends

KW - elective stock dividend

KW - optional stock dividend

KW - dividend policy

KW - payout policy

KW - crisis

KW - dividend reinvestment plans

KW - DRP

KW - financial constraints

KW - financial crisis

KW - cash retention

KW - mergers and acquisitions

M3 - Discussion paper

VL - 2018-031

T3 - CentER Discussion Paper

BT - Elective Stock and Scrip Dividends

PB - CentER, Center for Economic Research

CY - Tilburg

ER -

Feito Ruiz I, Renneboog L, Vansteenkiste C. Elective Stock and Scrip Dividends. Tilburg: CentER, Center for Economic Research. 2018 Sep 6. (CentER Discussion Paper).