The Litmus test for that is to check whether the decision of an individual shareholder affects the others. I argue that this is the case. Assume that the shareh

The Litmus test for that is to check whether the decision of an individual shareholder affects the others. I argue that this is the case. Assume that the shareholders have a preference for cash. If there is only one shareholder, he would clearly opt for the cash dividend, knowing that selling the equivalent amount of shares would adversely affect the market price. However, minority shareholders would probably opt for the shares, each thinking that he could sell the shares without affecting the market much, thereby ending up with 15% more cash in the end. And there is the negative externality: by opting for the shares and selling them, you push down the price a little for everyone, even though it only marginally affects you. So collectively, the shareholders will decide differently than if they were the only shareholder and might end up with less than if they would have chosen the cash dividend. Note that this argument only works when assuming that markets are not efficient, i.e. assuming that selling large quantities of shares affects their price.