Scrip Dividends Research Articles

Have European Banks Maintained Their Payout Policy during the Crisis? the Role of Scrip Dividends

Have European Banks Maintained Their Payout Policy during the Crisis? the Role of Scrip Dividends

The trend and composition of payout methods over a period of tax reform: Evidence from JSE-listed companies

Orientation: This study investigated the trend and composition of total payout distributed by companies listed on the Johannesburg Stock Exchange (JSE) over a period of tax reform.Research purpose: The aim was to investigate whether the payout methods post-2012, after the introduction of dividends tax, differed from pre-2012.Motivation for the study: Tax-related dividend literature predominantly explores the implications of differential taxes on dividends and of capital gains on dividends with a limited focus on total payout. The setting to investigate the total payout of JSE-listed companies is also unique as a result of South African tax reform.Research design, approach and method: Descriptive statistics and a mixed-model analysis of variance were employed to describe the payout methods (dividends, capital distributions, additional shares and share repurchases) in rand value and frequency of election. The population comprised of 116 JSE-listed companies for the financial reporting periods 2006–2018.Main findings: Ordinary dividends increased post-2012 whilst other payout, except for additional shares, decreased post-2012. An increase in scrip dividends (additional shares with a cash alternative) post-2012 confers flexibility to shareholders to manage their own financial needs, including tax considerations.Practical/managerial implications: The policy implication is that the increasing use of ordinary dividends as a payout method could inform future government initiatives to generate revenue or provide tax incentives for saving.Contribution/value-add: Submitted as the first article to investigate total payout of JSE-listed companies over a period of tax reform to provide evidence that payout policies adjusted based on the differential tax on dividends and capital gains.

Have European banks maintained their payout policy during the crisis? The role of scrip dividends

AbstractWe analyse the trend among 79 banks from 20 European countries towards scrip dividends. Whereas banks do not seem to smooth cash dividends, they do smooth total dividends, which include both cash and scrip dividends. We also find that the new legal requirements (resulting from the Basel III Accord and other country‐level laws) have different implications on cash and scrip dividends. Whereas the need for better and more capital imposed by these rules has led banks to cut cash dividends, there is a positive relationship between the legal requirements on capital adequacy and scrip dividends.

Elective stock and scrip dividends

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.

Elective Stock and Scrip Dividends

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.

Elective Stock and Scrip Dividends

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. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstra (This abstract was borrowed from another version of this item.)

On the impact of a scrip dividend on an equity forward

We consider an equity forward contract on a stock which pays a dividend during the forward’s lifetime. Furthermore, the stock owner is assumed to have the right to opt for either cash or scrip dividend. In the latter case, the stock owner receives the dividend in the form of additional shares and the number of shares to be received depends on the average stock price in a certain averaging time period. The decision between scrip or cash must be made by the stock owner at some time point during the averaging period. Within a Black–Scholes-type setup we derive a closed formula for the fair strike price of such an equity forward contract in dependence on the stock volatility parameter. If the decision between scrip or cash can be delayed until close to the end of the averaging period, it is demonstrated how the optionality for the stock owner has a non-negligible value which lowers the forward equity strike.

Public to Private Transactions, Private Equity Ownership and IPOs: A Case Study of Debenhams

This paper reviews the case of Debenhams (UK retailer) since it was taken private in 2003 by private equity funds, through its private equity ownership period, its IPO in 2006 and its subsequent underperformance. We investigate the period preceding the public to private, the valuation at this time, the deal structure and its funding – in particular the high amount of debt the company has been left with after its private equity ownership period. We also review the actions of its private equity owners to extract value and realise abnormal returns in a short period of time and the impact of such actions for Debenhams and its shareholders post-IPO. We look at the IPO and the subsequent underperformance of the Debenhams stock and the actions taken by management to address the issues of a highly leveraged company and reduce net debt. We find that Debenhams has been financially weakened by its private equity ownership period, especially through sale of freehold property (resulting in higher rent payments), high debt (creating a higher interest burden) and reduced capital expenditures (which will need to be compensated later). We also identify that Debenhams’ board had to cut dividends and propose a scrip dividend scheme in order to reduce its cash outflows and hence improve its net debt position. It also had to improve its working capital cycle by lengthening its suppliers’ payment terms.The state of Debenhams’ balance sheet after the private equity ownership period, significantly impacted by both the absence of its freehold properties and massive net debt, reduced the options available to the shareholders as these elements weighted negatively on shareholders’ returns and made a new takeover highly improbable.In the coming years, many other companies could be affected by similar issues as a vast amount of debt will be required to refinance the excesses of the past LBOs.

Die openbaarmaking van skripdividendskemas in Suid‐Afrika

Scrip dividend schemes provide shareholders with the option to choose shares instead of a cash dividend. Scrip dividends became popular in South Africa after the introduction of Secondary Tax on Companies (STC) in 1993. Thus far, no guidance on the recognition, measurement or disclosure of scrip dividends has been issued by the South African Institute of Chartered Accountants (SAICA). This article proposes disclosure regarding scrip dividend schemes that will provide relevant information to the users of financial statements. The proposed disclosure is based on the assumption that entities recognise and measure scrip dividends in accordance with the re‐investment method, as opposed to the capitalisation issue method.

Die rekeningkundige verantwoording van skripdividendskemas in Suid‐Afrika

Scrip dividends have become increasingly popular in South Africa since the introduction of secondary tax on companies (STC) in the 1993 budget. To date there is no accounting standard in South Africa that prescribes a particular accounting treatment for scrip dividends; therefore, different accounting approaches are used in South Africa to account for scrip dividends. These different approaches do not always meet the substance over form principle, as required by Generally Accepted Accounting Practice (GAAP). The result is that the information disclosed to the users of the financial statements differs from company to company. This study proposes an accounting treatment for scrip dividend schemes in South Africa. It concludes that the reinvestment approach is the most acceptable accounting treatment for scrip dividend schemes in South Africa.

Price performance of newly listed shares on the Johannesburg Stock Exchange

Extracted from text ... Number 47 - Part 2 R Lawson and M Ward Price performance of newly listed shares on the Johannesburg Stock Exchange 1. Introduction The Johannesburg Stock Exchange (JSE) plays the single most significant role in capital allocation in South Africa and, with a market capitalisation of US$275 billion in March 1997, the JSE was the twelfth largest stock-market in the world. Equity capital raised through new listings, rights issues and scrip dividends during 1995 alone was almost R20 billion, indicating that research into the efficiency of the market in pricing new listings is important. The following objectives for this study ..

Scrip Dividends: the Management's View

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.

On the Motivation for Paying Scrip Dividends

Firms in the United Kingdom that pay scrip (i.e., in stock) dividends do not appear to be following optimal dividend policies. Scrip dividends are not driven by tax considerations or cash shortages. The payment of scrip dividends exacerbates the agency costs of free cash flow.