The Impact of Nominal Stock Price on Ex-Dividend Price Responses

Abstract

We examine whether nominal stock price can help to explain the ex-dividend day anomaly. We find that stocks with lower nominal prices have ex-dividend day price drops that are more consistent with theoretical predictions based on an efficient market. After controlling for factors that have been previously documented to influence ex-dividend day stock price behavior, price-drop-to-dividend ratios are closer to one for lower priced stocks. To further explore this phenomenon, we examine the change in the price-drop-to-dividend ratio around stock splits. Firms that split their shares have price-drop-to-dividend ratios significantly closer to one after the split. Our evidence indicates that ex-dividend day stock price behavior is influenced by the nominal price of a share and that this relation could also influence the decision to split a firm’s shares.