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

Thomas David and Edith Ginglinger

Journal of Corporate Finance, 2016, vol. 40, issue C, 174-191

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.

Keywords: Dividends; Stock dividends; Scrip dividends; Dividend cuts; Dividend reinvestment plan (DRIP) (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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Working Paper: When cutting dividends is not bad news: The case of optional stock dividends (2016)
Working Paper: When Cutting Dividends Is Not Bad News: The Case Of Optional Stock Dividends (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:40:y:2016:i:c:p:174-191

DOI: 10.1016/j.jcorpfin.2016.07.008

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