Reinvesting Dividends

64 Pages Posted: 27 Jul 2022

See all articles by Jan Müller-Dethard

Jan Müller-Dethard

University of Mannheim

Niklas Reinhardt

University of Kiel - Institute for Quantitative Business and Economics Research (QBER)

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: July 15, 2022

Abstract

Contrary to the current state of research, we find almost complete reinvestment of dividends among the brokerage clients of a German online bank. Yet, investors do not reinvest most dividends immediately after payment. Initially, the bulk of dividends remains parked as cash in investors’ brokerage accounts. In the months following payment, this brokerage cash is then reinvested. We explain such behavior with default effects: Because both reinvestment and withdrawal from brokerage accounts require action, investors initially default to leaving dividends parked as brokerage cash. As time goes by and investors trade, they reduce their brokerage cash and reinvest dividends as an add-on to their usual trading activity. We test this explanation using a subset of dividends that are not paid to brokerage cash accounts, but directly to investors’ checking accounts. In line with default effects favoring such dividends to be consumed, we find no reinvestment among this subset of dividends.

Keywords: dividend reinvestment, default effects, brokerage cash accounts, mental accounting, household finance, retail investors

JEL Classification: D14, G11, G40, G41, G50, G51

Suggested Citation

Müller-Dethard, Jan and Reinhardt, Niklas and Weber, Martin, Reinvesting Dividends (July 15, 2022). Available at SSRN: https://ssrn.com/abstract=4164208 or http://dx.doi.org/10.2139/ssrn.4164208

Jan Müller-Dethard

University of Mannheim ( email )

Department of Finance, L9, 1-2
Mannheim, 68131
Germany

Niklas Reinhardt (Contact Author)

University of Kiel - Institute for Quantitative Business and Economics Research (QBER) ( email )

Heinrich-Hecht-Platz 9
Kiel, 24118
Germany

HOME PAGE: http://www.qber.uni-kiel.de/

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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