Why firms adopt and discontinue new-issue dividend reinvestment plans

Tarun Mukherjee, H. Baker and Vineeta Hingorani

Journal of Economics and Finance, 2002, vol. 26, issue 3, 284-296

Abstract: We examine several arguments—past performance, capital structure adjustment, and broadening the ownership base—involving why firms adopt and discontinue new-issue dividend reinvestment plans (DRPs). We test hypotheses for each argument by analyzing financial characteristics for firms adopting and discontinuing new-issue DRPs compared with matching non-DRP firms. The evidence provides some support for the past performance argument but none for the capital structure adjustment argument. Limited support also exists for the broadening the shareholder base argument. Overall, the results support the notion that firms needing funds initiate new-issue DRPs, and then discontinue them when the need for external funding diminishes. Copyright Springer 2002

Date: 2002
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DOI: 10.1007/BF02759712

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