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Elective stock and scrip dividends

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  • Feito-Ruiz, Isabel
  • Renneboog, Luc
  • Vansteenkiste, Cara

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.

Suggested Citation

  • Feito-Ruiz, Isabel & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Elective stock and scrip dividends," Journal of Corporate Finance, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301048
    DOI: 10.1016/j.jcorpfin.2020.101660
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    Cited by:

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    3. Shamsabadi, Hussein Abedi & Tebourbi, Imen & Nourani, Mohammad & Min, Byung S., 2021. "Corporate Governance and Dividend Reinvestment Plans: Insights from Imputation Tax in Australia," Finance Research Letters, Elsevier, vol. 41(C).
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    5. Diederich, Johannes & Goeschl, Timo & Waichman, Israel, 2023. "Self-nudging is more ethical, but less efficient than social nudging," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277679, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Stock dividends; Scrip dividends; Elective stock dividend; Optional stock dividend; Dividend policy; Payout policy; Crisis; Dividend reinvestment plans; DRIP; Financial constraints; Financial crisis; Cash retention; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G01 - Financial Economics - - General - - - Financial Crises

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