Elective Stock and Scrip Dividends

Elective Stock and Scrip Dividends

Isabel Feito-Ruiz, Luc Renneboog, Cara Vansteenkiste

Series number :

Serial Number: 

Date posted :

September 11 2018

Last revised :

September 11 2018
SSRN Share


  • 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

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.


Real name:
Isabel Feito-Ruiz
Real name:
Cara Vansteenkiste
UNSW Business School