Reinvesting or Consuming Dividends: Account Structure Matters

Jan Müller-Dethard, Niklas Reinhardt and Martin Weber

Review of Finance, 2025, vol. 29, issue 5, 1467-1495

Abstract: It is a long-standing fact that households mostly consume and rarely reinvest dividends. Among representative brokerage clients of one of Germany’s largest banks, we find the opposite: 80 percent reinvestments and 12 percent consumption. Of these reinvestments, the majority occurs with a delay after dividends are initially parked as brokerage cash. Motivated by this finding, we study payout modalities (deposits into brokerage accounts, checking accounts, or checks) as a novel mechanism that nudges investors toward reinvesting or consuming dividends. Consistent with a transition from checks to brokerage deposits, we find that the dividend consumption rate in the Consumer Expenditure Survey has decreased substantially over time.

Keywords: dividend reinvestment; brokerage cash; choice architecture; mental accounting; default effects; retail investors (search for similar items in EconPapers)
JEL-codes: D14 G11 G40 G41 G50 G51 (search for similar items in EconPapers)
Date: 2025
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