DIVIDEND REINVESTMENT PLANS IN AUSTRALIA

Keith K.W. Chan, Damien W. McColough and Michael T. Skully

Dividend reinvestment plans (DRPs) were introduced in Australia in 1982 primarily to help shareholders purchase new shares without transaction costs. Variants of the basic DRP were soon developed for taxation reasons to allow for income streaming. This paper examines the basic characteristics and the development of Australian DRPs. The impact of DRPs on firm value through information asymmetry and taxation is also discussed. With significant participation rates, DRPs will continue to be a major source of new equity capital for Australian companies.