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When Cutting Dividends Is Not Bad News: The Case Of Optional Stock Dividends

David, Thomas; Ginglinger, Edith (2015), When Cutting Dividends Is Not Bad News: The Case Of Optional Stock Dividends, 32nd International Conference of the French Finance Association - AFFI 2015, 2015-06, Cergy, FRANCE

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Type
Communication / Conférence
Date
2015
Conference title
32nd International Conference of the French Finance Association - AFFI 2015
Conference date
2015-06
Conference city
Cergy
Conference country
FRANCE
Metadata
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Author(s)
David, Thomas
Dauphine Recherches en Management [DRM]
Ginglinger, Edith
Dauphine Recherches en Management [DRM]
Abstract (EN)
This 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.
Subjects / Keywords
Long-term investors; Dividend cuts; Monitoring; SEOs; Scrip dividends; Stock dividends; Dividends
JEL
G35 - Payout Policy
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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