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When cutting dividends is not bad news: The case of optional stock dividends

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  • Thomas David

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Edith Ginglinger

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

Abstract

We provide evidence on optional stock dividends, a mechanism that allows shareholders to choose between cash dividends and the equivalent number of new shares in lieu of cash. We find that, in contrast to dividend cuts, shareholders do not view this option as bad news. When firms offer optional stock dividend in lieu of cash dividends, the market does not react negatively. Facing the choice between cash and stock dividend, shareholders choose 55% of the total dividend in the form of stock dividend. Our findings suggest that firms that are more committed to paying dividends are more likely to offer optional stock dividends to their shareholders.

Suggested Citation

  • Thomas David & Edith Ginglinger, 2016. "When cutting dividends is not bad news: The case of optional stock dividends," Post-Print hal-01356060, HAL.
  • Handle: RePEc:hal:journl:hal-01356060
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01356060
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    References listed on IDEAS

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    1. repec:eee:corfin:v:45:y:2017:i:c:p:333-341 is not listed on IDEAS
    2. Feito Ruiz, Isabel & Renneboog, Luc & Vansteenkiste, Cara, 2018. "Elective Stock and Scrip Dividends," Discussion Paper 2018-031, Tilburg University, Center for Economic Research.

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