Elective Stock Dividends and REITs: Evidence from the Financial Crisis

38 Pages Posted: 18 Feb 2014

See all articles by Erik Devos

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

Andrew C. Spieler

Hofstra University - Department of Finance

Desmond Tsang

McGill University - Desautels Faculty of Management

Multiple version iconThere are 3 versions of this paper

Date Written: Spring 2014

Abstract

In response to the recent financial crisis, the U.S. Government introduced new rules which allow Real Estate Investment Trusts (REITs) to issue elective stock dividends (ESDs), i.e., noncash dividends, to satisfy their distribution requirements. The purported goal of these rules was to provide temporary relief to REITs facing cash flow problems. We investigate how the introduction of these rules affects dividend policy of REITs. Surprisingly, we document that only 17 REITs chose to issue elective stock dividends. We examine the characteristics of these REITs and find that their cash flows are similar to REITs that do not select these dividends. This suggests that cash flow problems are unlikely to be the primary determinant of the ESD issuance decision. Instead, our findings indicate the decision to pay ESDs is related to the level of loans that are close to maturity, REIT size, growth prospects and poor performance during the financial crisis. Furthermore, we find that the same factors determine the ratio, amount and frequency of stock dividends issued by these REITs. We also examine the response of shareholders to ESDs announcements and find positive abnormal returns surrounding these dividend announcements.

Suggested Citation

Devos, Erik and Spieler, Andrew and Tsang, Desmond, Elective Stock Dividends and REITs: Evidence from the Financial Crisis (Spring 2014). Real Estate Economics, Vol. 42, Issue 1, pp. 33-70, 2014. Available at SSRN: https://ssrn.com/abstract=2397510 or http://dx.doi.org/10.1111/reec.12007

Erik Devos (Contact Author)

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915 747 7770 (Phone)

HOME PAGE: http://utminers/utep.edu/hdevos

Andrew Spieler

Hofstra University - Department of Finance ( email )

Hempstead, NY 11550
United States

Desmond Tsang

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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