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A discrete choice model of dividend reinvestment plans: classification and prediction

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  • Thomas P. Boehm
  • Ramon P. DeGennaro

Abstract

We use a discrete choice recursive model to classify companies with and without dividend reinvestment plans (DRIPs). Our model classifies 72.0% of companies correctly. We interpret misclassified companies as being likely to switch their plan status. For example, if financial data erroneously suggest that a company should have a DRIP then we expect that it would be more likely to institute a plan than other companies in the sample. Our results support this conjecture. Companies that add DRIPs tend to have more extreme levels of variables that control for management entrenchment, higher levels of variables that control for the ability to pay dividends and higher payout ratios. Copyright (C) 2011 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1527
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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 32 (2011)
Issue (Month): 4 (June)
Pages: 215-229

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Handle: RePEc:wly:mgtdec:v:32:y:2011:i:4:p:215-229

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Dammon, Robert M & Spatt, Chester S, 1992. " An Option-Theoretic Approach to the Valuation of Dividend Reinvestment and Voluntary Purchase Plans," Journal of Finance, American Finance Association, American Finance Association, vol. 47(1), pages 331-47, March.
  2. Sherrill Shaffer, 1990. "Aggregate deposit insurance funding and taxpayer bailouts," Working Papers 90-14, Federal Reserve Bank of Philadelphia.
  3. Peterson, Pamela P & Peterson, David R & Moore, Norman H, 1987. "The Adoption of New-Issue Dividend Reinvestment Plans and Shareholder Wealth," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 22(2), pages 221-32, May.
  4. Scholes, Myron S. & Wolfson, Mark A., 1989. "Decentralized investment banking : The case of discount dividend-reinvestment and stock-purchase plans," Journal of Financial Economics, Elsevier, Elsevier, vol. 24(1), pages 7-35, September.
  5. Smith, C.W. & Watts, R.L., 1992. "The Investment Oppotunity set and Corporate Financing, Dividend and Compensation Policies," Papers, Rochester, Business - Financial Research and Policy Studies 92-02, Rochester, Business - Financial Research and Policy Studies.
  6. Calhoun, Charles A & Deng, Yongheng, 2002. "A Dynamic Analysis of Fixed- and Adjustable-Rate Mortgage Terminations," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 24(1-2), pages 9-33, Jan.-Marc.
  7. Ryngaert, Michael, 1988. "The effect of poison pill securities on shareholder wealth," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 377-417, January.
  8. Todd, Janet M. & Domian, Dale L., 1997. "Participation rates of dividend reinvestment plans: Differences between utility and nonutility firms," Review of Financial Economics, Elsevier, Elsevier, vol. 6(2), pages 121-135.
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