Abstract
We investigated how ex-day prices reacted to the introduction of a dividend imputation system to Taiwan in 1998. Under this system, domestic individual shareholders pay taxes on dividends with fully refundable tax credits. We found a decline in ex-day abnormal returns after the tax reform. Ex-day abnormal returns are positively (negatively) related to dividend yields for the low-yield (high-yield) stocks in the post-imputation period. The results support the tax-based explanations.
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