Abstract
We study share price performance at the ex-dividend date and its relation to trading volume and a set of factors corresponding to different explanatory theories. Among the investigated factors that may have impact on the ex-dividend date share price are dividend yield, capital gains tax rate and dividends tax rate, transaction costs, market microstructure characteristics, market stock risk, and the disposition effect. The research was conducted using the panel data of companies from the BRIC zone for the period of 2005-2015. According to the obtained results, dividend capturing and disposition effect theories are likely to have explanatory power for the ex-day phenomenon for our sample. Tax theory and dividend clientele theory have not found empirical support.
Highlights
The ex-dividend day is a cutoff point when new stock owners will not be eligible to receive the nearest dividend payment
Dvdtax – tax rate on dividends; Ru – Russia dummy, Br – Brazil dummy, Ind – India dummy, Crisis – 2008–2009 global crisis period dummy; Dvdyld – dividend yield; Vol – historic stock return volatility based on Bloomberg data; Bidask – estimated historic bid-ask spread based on Bloomberg data; Mcap – market capitalization; Cgoh – capital gain overhang estimate; To – turnover estimate based on daily trade volume and number of shares outstanding for the [-90; -5] estimation window; Arb – abnormal return over 5 days preceding ex-day; Cons – intercept
Each prediction regarding dividend capturing theory and disposition effect theory finds at least partial empirical support
Summary
The ex-dividend day is a cutoff point when new stock owners will not be eligible to receive the nearest dividend payment. Among the factors that may have impact upon the ex-dividend date share price are dividend yield, capital gains and dividend tax rates, transaction costs, market microstructure, stock risk, and behavioral factors. According to dividend clientele theory, investors with a lower tax rate on dividends should prefer stocks with a higher dividend yield and vice versa, which may affect trading activity around the ex-day. Boyd, Jagannathan [1994] considered the influence of various investor types with different tax and risk profiles on ex-day share pricing This complex set of investors could make the relationship between the ex-dividend date price change and dividend yield non-linear. Among the most common factors related to ex-day share price changes and relative trading volume are dividend yield, the relationship between taxes on capital gains and taxes on dividend income, transaction costs and stock market risk, as well as capital gains overhang
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Schedule a callMore From: Journal of Corporate Finance Research / Корпоративные Финансы | ISSN: 2073-0438
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