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Scrip Dividends: the Management's View

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  • M. Ameziane Lasfer

Abstract

This paper examines the motivation underlying the payment of scrip dividends through a questionnaire survey conducted among a sample of companies listed on the London Stock Exchange that offered their shareholders this option, and a control sample of firms that paid only cash dividends. The results show that the overwhelming majority of the respondents from both groups feel that the scrip dividend option is driven by the current and/or potential high irrecoverable advanced corporation tax but the proposition that this option is a substitute for external finance or a cut in cash dividends is strongly rejected. Managers feel that, although the scrip dividend option allows small shareholders to increase their holdings without incurring transaction costs, it is not intended to convey information that will lead to a rise in the share price. Furthermore, the results reveal that the decision between offering this option or paying only cash dividends is substantially affected by shareholders’ pressure, suggesting that firms in the UK are subject to direct shareholder monitoring.

Suggested Citation

  • M. Ameziane Lasfer, 1997. "Scrip Dividends: the Management's View," European Financial Management, European Financial Management Association, vol. 3(2), pages 237-249, July.
    • Handle: RePEc:bla:eufman:v:3:y:1997:i:2:p:237-249
    DOI: 10.1111/1468-036X.00041
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    Cited by:

    1. David, Thomas & Ginglinger, Edith, 2016. "When cutting dividends is not bad news: The case of optional stock dividends," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 174-191.
    2. Feito-Ruiz, Isabel & Renneboog, Luc & Vansteenkiste, Cara, 2020. "Elective stock and scrip dividends," Journal of Corporate Finance, Elsevier, vol. 64(C).
    3. David Blanco‐Alcántara & Jorge Gallud‐Cano & Félix J. López‐Iturriaga & Óscar López‐de‐Foronda, 2022. "Have European banks maintained their payout policy during the crisis? The role of scrip dividends," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4619-4632, October.
    4. Alpa Dhanani, 2005. "Corporate Dividend Policy:," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1625-1672.
    5. Dennis Oswald & Steven Young, 2008. "Tax‐efficient irregular payout methods: The case of B share schemes and capital repayments via a court‐approved scheme of arrangement," Accounting and Business Research, Taylor & Francis Journals, vol. 38(1), pages 49-70.
    6. M. Ameziane Lasfer, 1997. "On the Motivation for Paying Scrip Dividends," Financial Management, Financial Management Association, vol. 26(1), Spring.
    7. Sophie Manigart & Koen De Waele, 1999. "Choice dividends and contemporaneous earnings announcements on a small stock market: an empirical study," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 161, pages 27-56.

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