Unique Dividends for Retail Shareholders: Evidence from Shareholder Perks
Previous studies indicate that retail investors are thought of as noise traders, price-takers, and free riders. However, many managers worldwide embrace the expense and treat their retail shareholders favorably. We examine why firms provide small individual stockholders with special treatment by using Japanese shareholder perks, which resemble dividends that are only for small individual shareholders. We find that firms with a low number of individual shareholders and high boardownership tend to initiate shareholder perks. The number of individual shareholders increases dramatically after perk initiation. The high attractiveness of perks for individual investors ispositively associated with the stock return on the initiation announcement day and negatively associated with the cost of capital after initiation. The ex-perk day return is significantly negative, and the trading volume around the ex-perk day is significantly positive. The number of individual shareholders is positively associated with the discount premium and the abnormal volume around the ex-day. These results imply that firms introduce perks to attract individuals and that a preference clientele effect clearly exists in dealings around the ex-day.