Stock dividends

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Monograph

Identifikator:: 829213031

URN:: urn:nbn:de:zbw-retromon-33862

Document type:: Monograph

Author:: Adler, Heinrich

Title:: Die österreichisch-rumänische Zollfrage

Place of publication:: Wien

Publisher:: Frick

Year of publication:: 1886

Scope:: 1 Online-Ressource (45 S)

Collection:: Economics Books

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LETTER OF SUBMITTAL VII From 1920 to 1926, inclusive, the large dividend distributions in stock and cash, more particularly the former, reduced the average surplus per dollar of capitalization for these 2,971 companies from $1.07 to $0.53. Surplus per dollar of capitalization at the close of 1926, therefore, was below that at the beginning of 1913, when it amounted to $0.60. The declaration of stock dividends at the rate prevailing in the last few years does not appear to be the result of any controlling necessity and seems to be of questionable advantage as a business policy. In the first place, the reduction of surplus through a stock dividend leaves the stockholder’s equity in a corporation precisely the same as it was, as measured by its book value. The result in this respect is the same as if the corporation increased the number of shares of its capital stock by splitting the original quantity into the same number as is outstanding as a result of the stock dividend. Second, the stock-dividend policy places permanently beyond the reach of shareholders for purposes of any subsequent’ distribution in cash or other assets whatever part of the surplus is capitalized. From the standpoint of the corporation it has been argued that this is an advantage because new capital has in effect been thus per- manently obtained without the necessity of selling new securities. But, essentially, this is only an argument for financing capital requirements from earnings and hence 1s not inseparably or peculiarly related to stock dividends. Third, the capitalization of surplus automatically reduces the total surplus, surplus per dollar of stock capitalization, and surplus per share below that which would be available if the capital stock is split into the same total number of shares. The corporation surplus serves as a reserve fund out of which dividends may be paid when not earned during the current year and against which losses and adjustments (if not too large) may be charged, thus avoiding possible impairment of the capital investment and mability to pay dividends without a readjustment of capital structure, even though such dividends are earned. On the other hand, where no stock dividends are declared shareholders may get a wrong impression of the nature of their property if the surplus has in major part been already em- bodied in fixed assets. The capitalization of that part of accumu- lated surplus thereby rendered unavailable for dividends or for reserve funds that may be needed later might be defended, under such circumstances, as a desirable correction of capital accounts. Had capital stock “split ups’ been substituted even to a com- paratively limited extent for stock dividends from 1920 to 1926 each shareholder might have possessed as many shares as he held at the end of that period, but each share would have been somewhat better protected, mn so far as surplus serves as a protection to shareholders. The foregoing statements should not be taken as favoring the creation of an excessive surplus, or its indiscriminate investment. Even though it is necessary or desirable for one reason or another to pursue a policy of building up a large surplus from earnings and reinvesting it in the business, it does not follow that it is either necessary or desirable to capitalize that surplus to the extent pre- vailing in the last few years. By the commission. W. E. Humparey, Chairman.

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