The Effect of Dividend Reinvestment and Stock Purchase Plan On REIT Payout Choice

This study investigates whether implementing Dividend Reinvestment and Stock Purchase Plan (DRSPP) influences REIT choice of cash flow distribution methods. Both agency cost and signaling models indicate that REITs with DRSPP should make relatively conservative payout choice, in order to attract and incentivize current and new shareholders to make longterm investments in stocks. We provide supportive evidence that relative to REITs without DRSPP, REITs with DRSPP are less likely to omit all the payouts, including regular dividends, extra dividends, and share repurchases; and REITs with DRSPP are less likely to pay extra dividends and/or repurchase shares when they pay stable regular dividends. Less volatile stock market as response to dividend announcements of REITs with DRSPP also reflects on the managerial effectiveness on maintaining a discretionary payout policy. In addition, we find strong dividend payment date effect in REITs with DRSPP but not in REITs without DRSPP, suggesting higher temporary price pressure in REITs with DRSPP around the dividend payment date.