Except for participants in DRPs of qualified utilities during 1982-1985, there is no tax benefit for participating.
For qualified utilities during 1982-85, Chang and Nichols (1992) find evidence supporting the increased use of DRPs for raising capital and a decreased reliance on debt.
The most likely motivators for participation are the discounts offered by some of these plans, the low or no commission cost, the tax benefit of qualified utilities during 1982-1985, and the past stock returns of the firm.
Discount Features, Qualified Utilities and Participation Rates
Thus, participating in DRPs of qualified utilities allowed investors to defer the tax on reinvested dividends ($750 for individuals and $1,500 for married filing jointly) and essentially convert the dividend return into a capital gain.
The Wilcoxon rank-sum test is used to determine whether the participation rate distribution of qualified utilities is the same as unqualified utilities, which corresponds to the null hypothesis.
The average participation rate in qualified utilities is expected to be greater than rates in nonqualifying utilities.
