Elective Stock and Scrip Dividends

53 Pages Posted: 10 Sep 2018

See all articles by Isabel Feito-Ruiz

Isabel Feito-Ruiz

University of Leon

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Cara Vansteenkiste

UNSW Australia Business School, School of Banking and Finance

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Date Written: September 6, 2018


We investigate firms’ decisions to pay elective stock dividends, known in the UK as scrip dividends. Scrip dividends give investors the choice between receiving new shares or the equivalent value as a cash dividend. UK firms paying scrip dividends are more likely to be financially constrained, and scrip dividends are used more when access to external financing is costly. Our results are robust to using the 2008 financial crisis as an exogenous shock to credit supply. Cash preservation is the most important corporate incentive to use scrip dividends as they tend to be distributed in combination with dividend cuts and with major corporate investments such as debt-financed mergers and acquisitions. Analysis of US dividend reinvestment plans by which investors purchase new shares confirms firms’ cash-preservation motives.

Keywords: Stock dividends, scrip dividends, elective stock dividend, optional stock dividend, dividend policy, payout policy, crisis, dividend reinvestment plans, DRIP, financial constraints, financial crisis, cash retention, mergers and acquisitions

JEL Classification: G35, G32, G34, G01

Suggested Citation

Feito-Ruiz, Isabel and Renneboog, Luc and Vansteenkiste, Cara, Elective Stock and Scrip Dividends (September 6, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 574/2018, Available at SSRN: https://ssrn.com/abstract=3245088 or http://dx.doi.org/10.2139/ssrn.3245088

Isabel Feito-Ruiz

University of Leon ( email )

Leon, 24071
00349872934900 (Phone)
0034987291740 (Fax)

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE

Cara Vansteenkiste

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052

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