Elective stock and scrip dividends

Abstract

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.

The association between ownership concentration and payout behaviour: Evidence from South Africa

“…An analysis of the association between the largest shareholders of companies and payout behaviour is submitted as a contributor to a better understanding of dividend policy (Truong & Heaney 2007). The increased use of payout methods other than dividends, especially share repurchases (Lazonick 2014), has led to a renewed interest in the motivation for different payout methods (Feito-Ruiz, Renneboog & Vansteenkiste 2020;Liu, Chiou & Yang 2014;Wesson et al 2018). Investigating the association between ownership concentration and payout behaviour is accordingly warranted, particularly to explore its conceivable contribution as a factor of corporate governance and to improve an understanding of the payout policies.…”

Cracking the fault line in stock markets: the case of bonus issue announcements

“…Scrip issue, scrip dividend, or optional stock dividend terms are commonly used in the UK and France. Feito-Ruiz et al (2020) define scrip dividends as the right to choose between the cash dividend and bonus shares. Stock splits differ from the bonus issues since splits do not affect capital reserve accounts in the equity statement.…”

“…Moreover, the cash substitution hypothesis suggests that firms may prefer bonus share distribution instead of cash dividends if they are optimistic for future growth (Kalay and Zhang, 2019). However, Feito-Ruiz et al (2020) suggest that financially constrained firms mostly apply optional bonus share distributions to satisfy upcoming debt payment. David and Ginglinger (2016) also claim probability of bonus distribution increases during economic downturns or when the leverage level of firms increases.…”

Determinants of Cash Distribution Options in South African Listed Firms: An Empirical Analysis of Earnings, Company Size, and Economic Value Added

“…According to Feito-Ruiz et al (2020) and Lazonick (2014), dividends, share repurchases, and other payout mechanisms are probable choices available for a firm's cash distribution and payout policy. Pidun (2019) suggested that share repurchasing has become an integral part of companies' financial strategy.…”

“…Researchers have investigated a wide range of variables that could determine a firm's cash distribution with a lack of consensus on the motivation for dividend payments or share repurchasing as a better option. This remains unresolved despite the numerous debates among scholars (Feito-Ruiz et al 2020;Liu et al 2014). Popular among the variables that determine cash distribution are earnings performance, cash flows, corporate governance, tax-effects, size, and the risk attitudes of shareholders (Faisal et al 2020;Al-Najjar and Kilincarslan 2019).…”