Decentralized Investment Banking: the Case of Discount Dividend-Reinve Stment and Stock-Purchase Plans

43 Pages Posted: 23 Sep 2000 Last revised: 16 Dec 2022

See all articles by Myron S. Scholes

Myron S. Scholes

Stanford Graduate School of Business; Platinum Grove Asset Management L.P.; Oak Hill Platinum Partners, LLC

Mark A. Wolfson

Stanford Graduate School of Business

Date Written: September 1989

Abstract

Discount dividend-reinvestment and stock-purchase plans allow shareholders to capture part of the underwriting fees incurred in new stock offerings and save sponsoring firms some of the usual underwriting costs. We tested the degree to which individual investors can profitably serve this investment banking function by implementing simple investment/trading strategies designed to capture the discounts and distribute the shares in the market. The large profits earned by our strategies raise serious questions about why it takes firms so long to raise the target level of capital and why many eligible shareholders do not participate in these discount plans.

Suggested Citation

Scholes, Myron S. and Scholes, Myron S. and Wolfson, Mark A., Decentralized Investment Banking: the Case of Discount Dividend-Reinve Stment and Stock-Purchase Plans (September 1989). NBER Working Paper No. w3093, Available at SSRN: https://ssrn.com/abstract=238172

Myron S. Scholes (Contact Author)

Stanford Graduate School of Business ( email )

Knight Way
Stanford, CA 94305-5015
United States
+1 415-812-7569 (Phone)
(650) 324-1519 (Fax)

Platinum Grove Asset Management L.P. ( email )

Reckson Executive Park, Building 4
1100 King Street
Rye Brook, NY 10573
United States

Oak Hill Platinum Partners, LLC ( email )

1100 King Street, Building 4
Rye Brook, NY 10573
United States

Mark A. Wolfson

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650) 723-0311 (Phone)
(650) 723-4010 (Fax)

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