Dividend reinvestment plans as efficient methods of raising equity financing

Foster Roden and Tom Stripling

Review of Financial Economics, 1996, vol. 5, issue 1, 91-100

Abstract: This paper presents the results of an examination of the effect of establishing dividend reinvestment plans by public utilities. The authors mailed a questionnaire to a sample of public utilities establishing dividend reinvestment plans before May 1981 and use event methodology to determine excess returns surrounding the announcement dates of plans. Empirical analysis reveals statistically significant positive average excess returns during a 15‐day period preceding the announcement. The authors note that the results are consistent with the explanation that DRPs are an efficient alternative to using underwriters to raise equity financing.

Date: 1996
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https://doi.org/10.1016/S1058-3300(96)90008-7

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:5:y:1996:i:1:p:91-100

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