Why do firms use drips, Why do firms use DRIPs? Companies

Why do firms use drips

Reference no: EM133633016

Question: Understanding how DRIPs work Under DRIP, the company gives any cash dividends that investors would have received to a bank, which acts as a trustee. The bank then uses the money to repurchase the company's stock on the open stock market. The bank allocates the shares purchased to the participating shareholders' accounts on a pro rata basis. levels of participation in a DRIP suggest that shareholders would be better served if the firm reduced its cash dividends. Why do firms use DRIPs? Companies decide to start, continue, or terminate their DRIPs for their shareholders based on the firms' need for equity capital. A firm might consider to using DRIPs if it needs additional equity capital.

Reference no: EM133633016

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