Abstract
In this paper, we explore salient features of dividend reinvestment plans (DRIPs), analyze their financial peculiarities and search for the differences between firms that offer DRIPs and those that do not. As more than 1200 firms currently offer the plan, an understanding of why these plans differ in a variety of cost/benefit structures and, perhaps more importantly, what separates these firms from No-DRIP firms is crucial for both investors and adaptors of the plan. Our research suggests that—out of 17 financial and accounting variables—DRIP firms differ from No-DRIP firms in only three variables. In spite of this, we conclude that there is much to learn about the motivation for DRIPs.
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