When Cutting Dividends Is Not Bad News: The Case Of Optional Stock Dividends
Indexation documentaireEconomie financière
SubjectLong-term investors; Dividend cuts; Monitoring; SEOs; Scrip dividends; Stock dividends; Dividends
Code JELG35; G32
Titre du colloque32nd International Conference of the French Finance Association - AFFI 2015
Ville du colloqueCergy
Pays du colloqueFRANCE
MétadonnéesAfficher la notice complète
Résumé en anglaisThis paper provides new evidence on dividend policy by studying optional stock dividends, a mechanism that allows firms to cut cash payouts without a negative market reaction. We find that highly leveraged firms with limited cash holdings and large institutional ownership are more likely to offer optional stock dividends to their hareholders. These firms are the most committed to paying dividends, and optional stock dividends provide them with an opportunity for a stealth cut in dividends during economic downturns. Shareholders overwhelmingly approve optional stock dividends at general meetings with the majority favoring stock dividends over cash dividends. Further, in contrast to dividend cuts, shareholders do not view optional stock dividends as bad news. Our results support the monitoring explanation of optional stock dividends and show that shareholders value a firm’s ability and willingness to pay dividends, even if the final cash payout is reduced.
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