YOUR KILLER EQUITIES INTERVIEW QUESTIONS: What is the effect on a company's liquidity and leverage ratios if it pays a stock dividend?

Here's the latest question sent in by site visitors who have attended equities interviews at investment banks. This question has allegedly been asked at equity research interviews at BNP Paribas. The answer has been suggested by the person who submitted the question (and is not being advocated by us). If you disagree with the answer, or have any superior alternative responses, please express your opinion in the comments box below.

THE QUESTION: What is the effect on a company's liquidity and leverage ratios if it pays a stock dividend?

THE SUGGESTED ANSWER:

Nothing. If the company were to pay a cash dividend then the liquidity ratios would decrease and the leverage ratios would increase. But when it is paid in stock, nothing changes for these ratios.