Answer to Question #13629 in Management for Tiarra Jefferson

Question

Which of the following statements are correct? One disadvantage of dividend einvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company

Answer 1

When dividends are reinvested the transaction costs for investors who want to increase their ownership in the company increase. This reinvestments increases Own equity of the firm and automatically increases price of share thus for those who want to increase their ownership, for example by buying more shares, it leads to increasing of transaction costs