A Discrete Choice Model of Dividend Reinvestment Plans: Classification and Prediction

Abstract:     
We develop a discrete choice recursive model that classifies companies with and without dividend reinvestment plans with 72.0% accuracy. Misclassified companies are more likely to switch their plan status within the next five years, suggesting that financial statements foreshadow changes in plan status. Companies that add dividend reinvestment plans tend to have more extreme levels of variables that control for management entrenchment, higher levels of variables that control for the ability to pay dividends and higher payout ratios.

Keywords: dividends, dividend reinvestment plan, discrete choice models

JEL Classification: G35, G10, G19, G20, G29

Accepted Paper Series